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File Nos. 333-26505 and 811-08209
As Filed with the Securities and Exchange Commission on April 28, 1999
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
(Exact Name of Trust)
UNITED INVESTORS LIFE INSURANCE COMPANY
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Complete address of depositor's principal executive offices)
Name and address of Agent for service: Copy to:
John H. Livingston, Esquire Frederick R. Bellamy, Esq.
United Investors Life Insurance Company Sutherland Asbill & Brennan LLP
2001 Third Avenue South 1275 Pennsylvania Avenue, N.W.
Birmingham, Alabama 35233 Washington, DC 20004-2415
--------------------------------
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)of Rule 485
[x] on April 30, 1999 pursuant to paragraph (b)of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ____________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of securities being registered: Variable Life Insurance Policies
<PAGE>
Prospectus
May 1, 1999
Please read this prospectus carefully before investing, and keep it for
future reference. It contains important information about the Advantage Plus
variable life insurance policy, which is issued by:
United Investors Life Insurance Co.
2001 Third Avenue South
Birmingham, Alabama 35233
The SEC maintains an Internet website (http://www.sec.gov) that contains
material incorporated by reference into this prospectus and other information.
Variable life insurance policies involve certain risks, and you may lose
some or all of your investment.
. We do not guarantee how any of the investment divisions will perform.
. The policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the policy.
. Neither the U.S. Government nor any Federal agency insures your investment in
the policy.
ADVANTAGE PLUSSM
VARIABLE LIFE INSURANCE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
United Investors Life Insurance Company
through
United Investors Universal Life Variable Account
The policy offers 12 funding choices--one fixed account (paying a guaranteed
minimum fixed rate of interest) and eleven variable investment divisions which
invest in the following mutual fund portfolios of Target/United Funds, Inc.:
. Asset Strategy Portfolio
. Balanced Portfolio
. Bond Portfolio
. Growth Portfolio
. High Income Portfolio
. Income Portfolio
. International Portfolio
. Limited-Term Bond Portfolio
. Money Market Portfolio
. Science and Technology Portfolio
. Small Cap Portfolio
There is no guaranteed cash surrender value for amounts allocated to the
variable investment divisions. If the net cash surrender value (the cash
surrender value reduced by any loan balance) is insufficient to cover the
charges due under the policy, the policy may terminate without value.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
U-1165, Ed.5-99
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Table of Contents
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<TABLE>
<S> <C>
Summary..................................................................... 1
The Policy................................................................ 1
Payment of Premiums....................................................... 1
Funding Choices........................................................... 1
Charges and Deductions.................................................... 2
Taxes..................................................................... 3
Cash Benefits............................................................. 3
Death Benefit............................................................. 3
Termination............................................................... 3
Other Information......................................................... 4
Inquiries................................................................. 4
United Investors Universal Life Variable Account............................ 6
Target/United Funds, Inc.................................................. 6
Fund Management and Fees.................................................. 8
Fixed Account............................................................... 9
The Policy.................................................................. 9
Applying for a Policy..................................................... 9
"Free Look" Right to Cancel the Policy.................................... 9
Premiums.................................................................. 10
Transfers................................................................. 11
Dollar-Cost Averaging..................................................... 12
Surrender of the Policy................................................... 12
Partial Surrenders........................................................ 12
Loan Benefits............................................................. 13
Requesting Payments....................................................... 14
Policy Changes............................................................ 14
Reports to Owners......................................................... 15
Other Policy Provisions................................................... 15
Assignment and Change of Owner............................................ 15
Supplemental Benefits..................................................... 16
Charges and Deductions...................................................... 16
Premium Expense Charge.................................................... 17
Mortality and Expense Risk Charge......................................... 17
Monthly Deduction......................................................... 17
Surrender Charge.......................................................... 17
Partial Surrender Charge.................................................. 18
Other Charges............................................................. 18
Cost of Insurance......................................................... 18
Reduction in Charges for Certain Groups................................... 19
Policy Values............................................................... 19
Policy Value.............................................................. 19
Variable Account Value.................................................... 20
Fixed Account Value....................................................... 21
Death Benefits.............................................................. 22
Amount of Death Benefit Payable........................................... 22
Death Benefit Options..................................................... 22
</TABLE>
ii
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<TABLE>
<S> <C>
Changing the Death Benefit Option......................................... 23
Changing the Face Amount.................................................. 23
Effect of Partial Surrenders on the Death Benefit......................... 24
Beneficiary............................................................... 25
Tax Considerations.......................................................... 25
Introduction.............................................................. 25
Tax Status of the Policy.................................................. 25
Tax Treatment of Policy Benefits.......................................... 26
Taxation of United Investors.............................................. 28
Employment-Related Benefit Plans.......................................... 28
Other Information........................................................... 28
United Investors Life Insurance Company................................... 28
Sale of the Policies...................................................... 30
Changing the Variable Account............................................. 30
Voting of Portfolio Shares................................................ 30
Addition, Deletion, or Substitution of Investments........................ 31
Other Information......................................................... 32
Litigation................................................................ 32
Legal Matters............................................................. 32
Experts................................................................... 32
Financial Statements...................................................... 32
Appendix A: Surrender Charges Per $1,000 of Face Amount..................... 33
Appendix B: Hypothetical Illustrations...................................... 34
Appendix C: Directors and Officers of United Investors...................... 43
Appendix D: Glossary........................................................ 44
Appendix E: Financial Statements............................................ F-1
</TABLE>
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This prospectus generally describes only the variable portion of the policy,
except where the fixed account is specifically mentioned.
Buying this policy might not be a good way of replacing your existing insurance
or adding more insurance if you already own a flexible premium variable life
insurance policy.
Certain terms and phrases used in this prospectus are explained in Appendix D.
iii
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Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage Plus variable life insurance
policy.
The Policy
The Advantage Plus variable life insurance policy is an individual flexible
premium variable life insurance policy issued by United Investors Life
Insurance Company. Among other things, the policy:
(a) provides insurance protection on the life of the insured until the policy's
maturity date.
(b) allows you to vary the amount and timing of the premiums you pay and to
change the amount of the death benefit payable under the policy.
(c) provides the opportunity for cash value build-up on a tax-deferred basis,
depending on investment performance of the underlying mutual fund
portfolios. However, there is no guaranteed policy value and you bear the
risk of poor investment performance.
(d) permits you to borrow against the policy value, to make partial surrenders,
or to surrender the policy completely. Loans and partial surrenders will
affect the policy value and may affect the death benefit and termination of
the policy.
In addition to providing life insurance, the policy provides a means of
investing for your retirement or other long-term purposes. Tax deferral allows
the entire amount you have invested (net of charges) to remain in the policy
where it can continue to produce an investment return. Therefore, your money
could grow faster than in a comparable taxable investment where current income
taxes would be due each year.
You may divide your Advantage Plus policy value among the fixed account and
eleven variable investment divisions which invest in portfolios of
Target/United Funds, Inc. We guarantee the principal and a minimum interest
rate you will receive from the fixed account. However, the value of what you
allocate to the eleven variable investment divisions is not guaranteed.
Instead, your investment in the variable investment divisions will go up or
down with the performance of the particular Target/United Funds portfolios you
select (and the deduction of charges). You will lose money on policy value
allocated to the variable investment divisions if performance is not
sufficiently positive to cover the charges under the policy.
Payment of Premiums
Although you select a premium payment plan, you are not required to follow
it. (The minimum initial premium and planned premium depend on age, sex, and
risk class of the insured, on the face amount of the policy, and on any
supplemental benefit riders to the policy.) Within limits, you can vary the
frequency and amount of premium payments and can skip planned premiums.
However, extra premiums may be required to prevent policy termination under
certain circumstances.
Funding Choices
We deduct a premium expense charge from each premium payment, and then we
allocate the net premium among the variable investment divisions and the fixed
account according to your written instructions.
You may allocate each premium (and your existing policy value) among
variable investment divisions which invest in the following eleven portfolios
of Target/United Funds, Inc.:
.Asset Strategy Portfolio
.Balanced Portfolio
.Bond Portfolio
.Growth Portfolio
.High Income Portfolio
.Income Portfolio
.International Portfolio
.Limited-Term Bond Portfolio
.Money Market Portfolio
.Science and Technology Portfolio
.Small Cap Portfolio
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For policies issued in California, the investment divisions which invest in
the Asset Strategy Portfolio and the High Income Portfolio are not available.
You may also allocate each premium (and your existing policy value) to the
fixed account. We guarantee your fixed account allocation will earn at least 4%
interest per year.
Charges and Deductions
We deduct a 3.5% premium expense charge from each premium payment. No sales
load is deducted from premiums.
We also make certain periodic deductions from your policy value. Each month,
we deduct the following from your policy value:
(a) the cost of insurance charge;
(b) the monthly administrative charge (currently $5.00, and guaranteed not to
exceed $7.50);
(c) a guaranteed death benefit charge ($0.01 per $1,000 of face amount) so long
as the death benefit guarantee is in effect; and
(d) any supplemental benefit charges.
Each day, we deduct a charge from the assets in the variable investment
divisions for certain mortality and expense risks we bear under the policy.
Currently, this charge is at an effective annual rate of 0.90% of those assets
during the first ten policy years and 0.70% thereafter. We guarantee not to
increase this mortality and expense risk charge above 0.90% in any policy year.
In addition, investment management fees, 12b-1 fees, and other expenses are
deducted from each portfolio of Target/United Funds, Inc. See the table below
for a summary of these portfolio expenses.
Target/United Funds, Inc. Annual Expenses(/1/)
(% of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other Total Portfolio
Portfolio Fee Fees(/2/) Expenses(/3/) Expenses
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<S> <C> <C> <C> <C>
Asset Strategy 0.79% 0.25% 0.19% 1.23%
Balanced 0.59% 0.25% 0.06% 0.90%
Bond 0.52% 0.25% 0.06% 0.83%
Growth 0.69% 0.25% 0.02% 0.96%
High Income 0.64% 0.25% 0.05% 0.94%
Income 0.69% 0.25% 0.03% 0.97%
International 0.79% 0.25% 0.15% 1.19%
Limited-Term Bond 0.54% 0.25% 0.17% 0.96%
Money Market 0.49% 0.25% 0.09% 0.83%
Science and Technology 0.69% 0.25% 0.12% 1.06%
Small Cap 0.84% 0.25% 0.04% 1.13%
</TABLE>
(/1/) These expenses are deducted directly from the assets of the Target/United
Funds, Inc. portfolios and therefore reduce their net asset value. Waddell &
Reed, Inc., the investment adviser of Target/United Funds, Inc., supplied the
above information, and we have not independently verified it. See the
Target/United Funds, Inc. prospectus for more complete information.
(/2/) Each portfolio pays a service fee to Waddell & Reed, Inc., the principal
underwriter of Target/United Funds, Inc. and the policy, of no more than 0.25%
of the portfolio's average annual net assets. The fee reimburses Waddell &
Reed, Inc. for arranging to provide personal services to policy owners and to
maintain their policies. Waddell & Reed, Inc. represents that this is a Service
Plan as permitted by Rule 12b-1 under the Investment Company Act of 1940.
(/3/) Other Expenses are those incurred for the year ended December 31, 1998.
Actual expenses of Target/United Funds, Inc. may be greater or less than
those shown.
2
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We deduct a surrender charge from the policy value upon a full surrender of
the policy before the 16th policy anniversary (or the 16th anniversary of any
increase in the policy's face amount). The surrender charge rate, which is a
stated amount per $1,000 of face amount, varies with the insured's age on the
policy's effective date (or at the time of increase in the policy's face
amount). The surrender charge is constant until the fifth policy anniversary
(or the fifth anniversary of any increase in the policy's face amount), and
then decreases annually to zero at the 16th policy anniversary (or the 16th
anniversary of any increase in the policy's face amount).
We deduct a partial surrender charge upon a partial surrender of the policy.
The partial surrender charge is a portion of the then-applicable surrender
charge, plus the lesser of $25 or 2% of the partial surrender amount.
Taxes
We intend for the policy to satisfy the definition of life insurance under
the Internal Revenue Code. Therefore, the death benefit generally should be
excludable from the gross income of its recipient. Similarly, you should not be
deemed to be in constructive receipt of the policy value, and therefore should
not be taxed on increases in the policy value until you take out a loan,
surrender the policy, or we pay the maturity benefit. Under certain
circumstances, a policy could be treated as a modified endowment contract. See
"Tax Considerations" for a discussion of when distributions, such as surrenders
and loans, from policy value could be subject to Federal income tax and penalty
tax.
Cash Benefits
Your policy value is the sum of the amounts allocated to the variable
investment divisions (variable account value) and the amount allocated to the
fixed account (fixed account value). The cash surrender value (the policy value
less any applicable surrender charges) may be substantially less than the
premiums paid.
Policy Loans. You may take loans in aggregate amounts of up to 90% of the
policy's cash surrender value. Policy loans reduce the amount available for
allocations and transfers.
Full Surrender. You may surrender the policy at any time for its net cash
surrender value. The net cash surrender value is the cash surrender value less
any loan balance.
Partial Surrender. You generally may make a partial surrender of the policy
at any time during the insured's life, provided that the policy has sufficient
net cash surrender value remaining.
Death Benefit
You must select one of two death benefit options under the policy:
(a) the greater of the policy's face amount or a multiple of its policy value;
or
(b) the greater of (i) the policy's face amount plus its policy value or (ii) a
multiple of its policy value.
Subject to certain limits, you may change the policy's face amount and death
benefit.
The policy's death benefit guarantee feature will keep the policy in force
during the death benefit guarantee period even if there is insufficient cash
surrender value to pay the cost of insurance and other periodic charges. The
death benefit guarantee remains effective so long as cumulative premiums paid
on the policy, less any partial surrenders and outstanding loan balance, equals
or exceeds (i) the minimum monthly premium multiplied by (ii) the number of
months the policy has been in force. If the death benefit guarantee ends due to
insufficient premium payments, it may not be restored by payment of additional
premiums.
The death benefit guarantee period generally ends at the insured's age 65
under death benefit option (a) or age 62 under death benefit option (b). This
period may vary in some states.
Termination
There is no minimum guaranteed policy value. The policy value may decrease
if the investment
3
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performance of the variable investment divisions (to which policy value is
allocated) is not sufficiently positive to cover the charges deducted under the
policy.
If the net cash surrender value (based on the policy value) becomes
insufficient to cover the monthly deduction when due and the death benefit
guarantee is not in effect, the policy will terminate without value after a
grace period, even if all planned premiums have been paid in full and on
schedule. Additional premium payments will be necessary during the grace period
to keep the policy in force if this occurs.
Other Information
Free Look: For a limited time after the policy's effective date, you may
cancel the policy and receive a full refund of all premiums paid.
Supplemental Benefits. Your policy may have one or more supplemental
benefits which are attached to the policy by rider. Each is subject to its own
requirements as to eligibility and additional cost. Among the benefits
currently available under the policy are:
(a) accelerated death benefit rider;
(b) accidental death benefit rider;
(c) children's term insurance rider;
(d) additional insured term insurance rider; and
(e) disability waiver of monthly deductions rider.
Other supplemental benefits may also be available.
Transfers: Within certain limits, you may transfer all or part of your
policy value among the variable investment divisions and the fixed account up
to 12 times in a policy year.
Dollar-Cost Averaging: Before the maturity date, you may have automatic
monthly transfers of a predetermined dollar amount made from the money market
investment division to other variable investment divisions. Certain minimums
and other restrictions apply.
Illustrations: Sample projections of hypothetical death benefits and policy
values are in Appendix B to this prospectus. These projections may help you:
(a) understand (i) the long-term effects of different levels of investment
performance and (ii) the charges and deductions under the policy; and
(b) compare the policy to other life insurance policies.
The projections also show the value of the annual premiums accumulated with
interest and demonstrate that the policy value may be low (compared to the
premiums plus accumulated interest) if the policy is surrendered in the early
policy years. Therefore, the policy should not be purchased as a short-term
investment.
Age: A number of policy provisions depend on the insured's age. This usually
means the insured's attained age, which is the actual age on the last policy
anniversary. During part of each policy year, attained age is one year less
than actual age. This may be better for you since it could mean, for example,
lower cost of insurance charges and a higher death benefit.
Financial Information: Our financial statements, and financial statements
for the variable investment divisions, are in Appendix E to this prospectus.
Inquiries
If you have questions about your policy or need to make changes, contact
your financial representative who sold you the policy, or contact us at:
United Investors Life Insurance Company
Administrative Office
5525 LBJ Freeway, Suite 500
P. O. Box 219065
Dallas, Texas 75221-9065
Telephone: (800) 451-6923
4
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The policy is not available in all states. This prospectus does not offer
the policies in any jurisdiction where they cannot be lawfully sold. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
NOTE: Because this is a summary, it does not contain all the information
that may be important to you. You should read this entire prospectus and the
Target/United Funds, Inc. prospectus carefully before investing.
5
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United Investors Universal Life Variable Account
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The variable investment divisions are "sub-accounts" or divisions of the
United Investors Universal Life Variable Account (the "Variable Account"). We
established the Variable Account as a segregated asset account on April 18,
1997. The Variable Account will receive and invest the premiums allocated to
the variable investment divisions. Our Variable Account is currently divided
into eleven investment divisions. Each division invests exclusively in shares
of a single portfolio of Target/United Funds, Inc. Income, gains and losses
arising from the assets of each investment division are credited to or charged
against that division without regard to income, gains or losses from any other
investment division of the Variable Account or arising out of any other
business we may conduct.
The assets in the Variable Account are our property. However, the assets
allocated to the variable investment divisions under the policy are not
chargeable with liabilities arising out of any other business that we may
conduct. The Variable Account is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"). It meets the
definition of a "separate account" under the Federal securities law. However,
the SEC does not supervise the management or investment practices or policies
of the Variable Account or us.
Target/United Funds, Inc.
The Variable Account invests in shares of Target/United Funds, Inc., a
mutual fund with the following investment portfolios:
1. Asset Strategy Portfolio;
2. Balanced Portfolio;
3. Bond Portfolio;
4. Growth Portfolio;
5. High Income Portfolio;
6. Income Portfolio;
7. International Portfolio;
8. Limited-Term Bond Portfolio;
9. Money Market Portfolio;
10. Science and Technology Portfolio; and
11. Small Cap Portfolio.
The assets of each portfolio of Target/United Funds, Inc. are separate from the
assets of the other portfolios. Thus, each portfolio operates separately, and
the income, gains, or losses of one portfolio have no effect on the investment
performance of any other portfolio.
6
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The investment objectives and policies of each portfolio are summarized
below. There is no assurance that any of the portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Target/United Funds, Inc. prospectus, which accompanies this
prospectus.
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Asset Strategy The Asset Strategy Portfolio seeks high total return over the long-
term. It seeks to achieve its goal by allocating its assets among
stocks, bonds, and short-term instruments, both in the United
States and abroad.
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Balanced The Balanced Portfolio seeks as a primary goal, current income,
with a secondary goal of long-term appreciation of capital. It
invests primarily in a mix of stocks, fixed-income securities and
cash, depending on market conditions.
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Bond The Bond Portfolio seeks a reasonable return with more emphasis on
preservation of capital. It seeks to achieve its goal by investing
primarily in domestic debt securities, usually of investment grade.
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Growth The Growth Portfolio seeks capital growth, with a secondary goal of
current income. It seeks to achieve its goal by investing primarily
in common stocks, or securities convertible into common stocks, of
U.S. and foreign companies.
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High Income The High Income Portfolio seeks as a primary goal, high current
income with a secondary goal of capital growth. It seeks to achieve
its goals by investing primarily in high-yield, high-risk, fixed-
income securities of U.S. and foreign issuers, the risks of which
are consistent with the Portfolio's goals.
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Income The Income Portfolio seeks maintenance of current income, subject
to market conditions, with a secondary goal of capital growth. It
seeks to achieve its goals by investing primarily in common stocks
of large U.S. and foreign companies that have a record of paying
regular dividends on common stock or have the potential for capital
appreciation, or are expected to resist market decline.
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International The International Portfolio seeks as a primary goal, long-term
appreciation of capital, with a secondary goal of current income.
It seeks to achieve its goals by investing primarily in common
stocks, or securities convertible into or exchangeable for common
stocks, of foreign companies that may have the potential for long-
term growth.
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Limited-Term Bond The Limited-Term Bond Portfolio seeks a high level of current
income consistent with preservation of capital. It seeks to achieve
its goal by investing primarily in investment-grade debt securities
of U.S. issuers, including U.S. Government securities.
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Money Market The Money Market Portfolio seeks current income consistent with
stability of principal. It seeks to achieve its goal by investing
in U.S. dollar-denominated high quality money market obligations
and instruments.
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Science and Technology The Science and Technology Portfolio seeks long-term capital
growth. It seeks to achieve its goal by concentrating its
investments primarily in the common stock of science and technology
securities of U.S. and foreign companies.
</TABLE>
7
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Small Cap The Small Cap Portfolio seeks capital growth. It seeks to achieve
its goal by investing primarily in common stocks, or securities
convertible into the common stocks, of companies that are
relatively new or unseasoned, companies in their early stages of
development, or smaller companies positioned in new or in emerging
industries where the opportunity for rapid growth is above average.
</TABLE>
Target/United Funds, Inc. is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts issued by various
insurance companies. For more information about the risks associated with the
use of the same funding vehicle for both variable annuity and variable life
insurance contracts of various insurance companies, see the Target/United
Funds, Inc. prospectus.
Fund Management and Fees
Waddell & Reed Investment Management Company, the manager of Target/United
Funds, Inc., provides investment advisory services to its portfolios. The
manager is a wholly-owned subsidiary of Waddell & Reed, Inc., which is a
wholly-owned subsidiary of Waddell & Reed Financial Services, Inc., a holding
company. Waddell & Reed Financial Services, Inc. is a wholly-owned subsidiary
of Waddell & Reed Financial, Inc., a publicly held company. The manager
provides investment advice to and supervises investments of a number of mutual
funds. The manager maintains a large staff of experienced investment personnel
and a full complement of related support facilities. Each Target/United Funds
portfolio pays the manager a fee for managing its investments. The fee
consists of two elements:
(i) a specific fee computed each day on the portfolio's net asset value at
the following annual rates; and
<TABLE>
<CAPTION>
Portfolio Specific Fee (%)
--------- ----------------
<S> <C>
Asset Strategy............................................. 0.30%
Balanced................................................... 0.10%
Bond....................................................... 0.03%
Growth..................................................... 0.20%
High Income................................................ 0.15%
Income..................................................... 0.20%
International.............................................. 0.30%
Limited-Term Bond.......................................... 0.05%
Money Market............................................... 0.00%
Science and Technology..................................... 0.20%
Small Cap.................................................. 0.35%
</TABLE>
(ii) the portfolio's proportionate share of a base fee computed each day on
the combined net asset values of all the portfolios at the following
annual rates:
<TABLE>
<CAPTION>
Group Net Asset
Level ($ millions) Base Fee (%)
------------------ ------------
<S> <C>
<$750........................................................... 0.51%
$750 - $1,500................................................... 0.49%
$1,500 - $2,250................................................. 0.47%
>$2,250......................................................... 0.45%
</TABLE>
The base fee is computed on the combined net asset value of all eleven
portfolios of Target/United Funds, Inc. For 1998, the base fee rate was 0.49%.
A proposal is outstanding to change the investment management fees for each
portfolio. See the Target/United Funds, Inc. prospectus for complete details.
8
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Fixed Account
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The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is part of our general account assets. It is not a
separate account. Amounts allocated to the fixed account are credited with
interest at rates determined in our sole discretion, but in no event will
interest credited on these amounts be less than an effective annual rate of 4%.
The current interest rate is the guaranteed minimum interest rate plus any
excess interest rate. The current interest rate is determined periodically. The
current interest rate will be guaranteed for at least a one-year period. You
assume the risk that interest credited may not exceed the guaranteed minimum
rate of 4% per year. We may credit interest at a rate in excess of 4% per year,
but any excess interest credited will be determined in our sole discretion. The
policy owner assumes the risk that interest credited to the fixed account may
not exceed 4% per year. The fixed account may not be available in all states.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the fixed
account.
As the policy owner, you determine the allocation of policy value to the
fixed account. There are significant limits on your right to transfer policy
value into and out of the fixed account. (See "Transfers.")
The Policy
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Applying for a Policy
To purchase a policy, you must complete an application, submit it to our
administrative office (at the address listed on page 4 of this prospectus), and
pay an initial premium which varies by age, sex and risk class. (See "Premiums"
below). The initial premium must be paid prior to the policy's effective date.
(We will only accept a premium that complies with our underwriting rules.)
Coverage becomes effective as of the policy's effective date. If the proposed
insured dies before the policy's effective date, our sole obligation will be to
return the premium paid plus any interest earned on it (unless a temporary
insurance agreement is in effect).
Generally, we will issue a policy covering an insured up to attained age 75
(on the policy's effective date) if evidence of insurability satisfies our
underwriting rules. Evidence of insurability may include, among other things, a
medical examination of the insured. We may, in our sole discretion, issue a
policy covering an insured over age 75. We reserve the right not to accept an
application for any lawful reason.
"Free Look" Right to Cancel the Policy
During the "free look" period, you may cancel your policy and receive a
refund of all premiums paid. The "free look" period expires the later of:
(a) 20 days after you receive your policy; or
(b) 45 days after you sign the application for the policy.
Some states may require a longer period or a different refund amount. In
order to cancel the policy, you must return it by mail or other delivery before
the end of the "free look" period to our administrative office or to the agent
who sold it to you.
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Premiums
The premium amounts sufficient to fund a policy depend on a number of
factors, such as:
(a) the age, sex and risk class of the proposed insured;
(b) the face amount of the policy; and
(c) any supplemental benefits under the policy.
The initial premium must be at least equal to the minimum monthly premium.
After the initial premium is paid, additional premiums may be paid in any
amount and at any time. We may require that any additional premiums be at least
a specified amount. We will give you 90 days' advance written notice if we
establish such a minimum.
Total premiums paid in a policy year may not exceed guideline premium
limitations for life insurance set forth in the Internal Revenue Code. We
reserve the right to reject any premium that would result in the policy being
disqualified as life insurance under the Code and will refund any rejected
premium. (See "Tax Considerations.")
Planned Premiums. When you apply for a policy, you select a quarterly, semi-
annual or annual premium payment plan. You may also arrange for premiums to be
paid monthly via automatic deduction from your checking account or other
payment methods approved by us. You are not required to pay premiums in
accordance with this premium plan; rather, you can pay more or less than
planned premiums (subject to the $25 minimum), or skip a planned premium
entirely. You can change the amount of planned premiums and payment
arrangements, or switch payment frequencies, whenever you want by providing
satisfactory written instructions to our administrative office. Such changes
will be effective upon our receipt of the instructions. If you increase the
policy's face amount, then a change in the amount of planned premiums may be
advisable, depending on the policy value at that time and the amount of the
increase requested. (See "Changing the Face Amount.")
Premiums to Prevent Termination. If you do not pay planned premiums or if
the investment performance of the policy's variable investment divisions is not
sufficient, your policy may terminate without value. Policy termination depends
on (i) whether the net cash surrender value is sufficient to cover the monthly
deduction when due and (ii) whether the death benefit guarantee is in effect.
If the death benefit guarantee is not in effect on a monthly anniversary and
either
(a) the net cash surrender value is less than the monthly deduction, or
(b) the loan balance exceeds the cash surrender value,
the policy will terminate without value unless additional premiums are paid.
(See "Monthly Deduction" and "Death Benefit Guarantee.")
You will have a 61-day grace period to pay a premium sufficient to cover the
monthly deduction. We will send notice of the amount required to be paid during
the grace period to your last known address (and to any assignee of record).
The grace period will begin when the notice is sent, and your policy will
remain in effect during the grace period. (See "Amount of Death Benefit
Payable" and "Effect of Policy Loan.") The grace period premium required to be
paid will be sufficient to keep the policy in force for three months regardless
of investment performance. The payment required will not exceed:
(a) the amount by which the loan balance exceeds the cash surrender value;
plus
(b) any accrued and unpaid monthly deductions as of the date of the notice;
plus
(c) an amount sufficient to cover the next two monthly deductions.
If the grace period premium has not been paid before the end of the 61-day
grace period, your policy will terminate. It will have no value, and no
benefits will be payable. (See "Other Policy Provisions" for a
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discussion of your reinstatement rights.) If the insured should die during the
grace period before the grace period premium is paid, the death benefit will
still be payable to the beneficiary, although the amount paid will reflect a
reduction for any monthly deductions due on or before the date of the insured's
death and for any loan balance.
Death Benefit Guarantee. During the death benefit guarantee period, the
death benefit is guaranteed to remain in effect so long as cumulative premiums
paid, less any partial surrenders and any loan balance, are at least equal to
(i) the minimum monthly premium, multiplied by (ii) the number of months the
policy has been in force. If this requirement is met, the policy will remain in
force, regardless of the sufficiency of net cash surrender value to cover
monthly deductions. If the minimum monthly premium has changed since the
policy's effective date, the total premium amount required will be based on
each minimum monthly premium amount and the number of months for which each
applied. If the death benefit guarantee ends due to insufficient premium
payments, it may not be restored by payment of additional premiums.
For death benefit option A, the death benefit guarantee period lasts five
years or until the insured's attained age 65, whichever is later. For death
benefit option B, the period is the later of three years or until the insured's
attained age 62. However, for policies sold in Massachusetts the death benefit
guarantee period is five years for both option A and option B.
Crediting Premiums to the Policy. Between the date your initial premium is
received and the policy's effective date, we will credit interest on the
initial premium as if it had been invested in the variable investment division
investing in the money market portfolio. On the policy's effective date, the
initial net premium, plus any accrued interest on that amount, will be credited
to the policy. Any additional premium received will be credited to the policy
on the date we receive it, or the next business day thereafter.
Net Premium Allocations. When you apply for a policy, you specify the
percentage (from 0% to 100%) of net premium payments to be allocated to each
variable investment division and to the fixed account. You can change the
allocation percentages at any time by sending satisfactory written instructions
to our administrative office. The change will apply to all premiums received
after we receive your instructions, unless you instruct otherwise. Net premium
payment allocations must be in percentages totaling 100%, and each allocation
percentage must be a whole number.
Transfers
At any time after the end of the "free look" period, you may transfer all or
part of your variable account value to one or more of the other variable
investment divisions or to the fixed account up to 12 times in a policy year.
There is no charge for making transfers. You may transfer all or part of your
fixed account value to one or more variable investment divisions only once each
policy year, and the maximum amount you can transfer out of the fixed account
is the greater of:
(a) 25% of the prior policy anniversary's unloaned fixed account value; or
(b) the amount of the prior policy year's transfer.
If a transfer is made from the fixed account to a variable investment division,
no transfer from that variable investment division to the fixed account may be
made for six months after the transfer date. The minimum amount that may be
transferred out of a variable investment division or the fixed account is $100,
or, if less, the policy value in the variable investment division or in the
fixed account. The amount remaining must be at least $100, or we will transfer
the total value.
Transfer requests may be made by satisfactory written or telephone request
(if we have your written authorization for telephone requests on file). A
transfer will take effect on the date we receive the request at our
administrative office if it is received by 4:00 p.m. Eastern time; otherwise it
will take effect on the following business day. We may, however, defer
transfers under the same conditions that we may delay paying proceeds.
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(See "Requesting Payments.") We reserve the right to modify, restrict, suspend
or eliminate the transfer privileges, including telephone transfer privileges,
at any time, for any reason.
We have the authority to honor any telephone transfer request believed to be
authentic. We employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. For example, you may be required to use
a personal identification number to initiate a telephone transfer. We will not
be liable for the consequences of a fraudulent telephone transfer request we
believe to be authentic when we have followed those procedures. As a result,
you bear the risk of loss arising from such a fraudulent request if you give us
authorization for telephone transfers.
Dollar-Cost Averaging
The dollar-cost averaging program permits you to systematically transfer a
set dollar amount from the money market investment division to the other
variable investment divisions on a monthly basis prior to the policy's maturity
date. The minimum automatic transfer amount is $100. If the transfer is to be
made to more than one variable investment division, a minimum of $25 must be
transferred to each variable investment division selected. The dollar-cost
averaging method of investment is designed to reduce the risk of making
purchases only when the price of units is high, but you should carefully
consider your financial ability to continue the program over a long enough
period of time to purchase units when their value is low as well as when it is
high. Dollar-cost averaging does not assure a profit or protect against a loss.
You may elect to participate in the dollar-cost averaging program at any
time by sending a written request to our administrative office. Once elected,
dollar-cost averaging remains in effect from the date we receive your request
until the value of the money market investment division under your policy is
depleted, or until you cancel your participation in the program by written
request or by telephone. There is no additional charge for dollar-cost
averaging. A transfer under this program is not counted as a transfer for
purposes of the 12-transfer limit discussed above. We reserve the right to
discontinue offering the dollar-cost averaging program at any time and for any
reason. A second method of dollar-cost averaging is for you to allocate monthly
premiums directly to the variable investment divisions you desire.
Surrender of the Policy
You may surrender your policy at any time for its net cash surrender value.
(See "Requesting Payments.") The net cash surrender value is the policy value
minus any surrender charge and minus any loan balance. A surrender charge may
apply. (See "Surrender Charge.") Your policy will terminate and cease to be in
force when it is surrendered. It cannot later be reinstated if it has been
surrendered for its net cash surrender value. Surrendering the policy may have
tax consequences. (See "Tax Considerations.")
Partial Surrenders
You may make partial surrenders under your policy at any time during the
insured's life and before the policy has terminated. (See "Requesting
Payments.") Requests for partial surrenders must be made in writing. The
minimum partial surrender amount is $100. The amount remaining after a partial
surrender must be at least $300. A partial surrender charge will be deducted
from your policy value along with the partial surrender amount requested.
The partial surrender charge is:
(a) the lesser of $25 or 2% of the partial surrender amount; plus
(b) a portion of the surrender charge equal to (i) the percentage of the
net cash surrender value requested, multiplied by (ii) the surrender
charge then in effect.
When you request a partial surrender, you should tell us what funding
choices the policy value should be deducted from. If you provide no directions,
the partial surrender amount and partial surrender charge will be
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deducted from your policy value in the variable investment divisions and the
fixed account on a pro rata basis. If death benefit option A is in effect, a
partial surrender may reduce the face amount of your policy. (See "Effect of
Partial Surrenders on the Death Benefit.") Partial surrenders may have tax
consequences. (See "Tax Considerations.")
Loan Benefits
You may borrow up to 90% of your cash surrender value at any time by
submitting a written request to our administrative office. (This percentage may
vary in some states.) The cash surrender value is the policy value less any
applicable surrender charges. Outstanding loans, including accrued interest,
reduce the amount available for new loans. The minimum loan amount is $200.
Your policy may terminate if the loan balance becomes greater than the cash
surrender value. (See "Premiums to Prevent Termination.") Policy loans may have
income tax consequences. (See "Tax Considerations.")
When a loan is made, an amount equal to the requested loan and any loan
interest is transferred from the variable account value to the fixed account.
The amount to be transferred will be deducted from each variable investment
division in the same proportion that the value of each variable investment
division bears to your variable account value unless you specify one or more
variable investment divisions from which the loan is to be made.
Interest. We will charge interest daily on any outstanding loan at an
effective annual rate of 6.0%. Interest is due and payable at the end of each
policy year while a loan is outstanding. Interest paid on a policy loan
generally is not tax-deductible. If, on any policy anniversary, interest
accrued since the last policy anniversary has not been paid, the amount of the
interest is added to the loan and becomes part of the outstanding loan balance.
Interest will be deducted from the variable investment divisions in the same
proportion that the value of each variable investment division bears to your
variable account value. On each monthly anniversary, the loaned amount will be
credited with interest at a minimum guaranteed effective annual rate of 4.0%.
We may also credit additional interest (currently up to an effective annual
rate of 2%) on the preferred loan amount. Your loan will be divided into two
parts: the preferred loan amount and the non-preferred loan amount. The
preferred loan amount is equal to the amount of the loan balance that does not
exceed the policy value minus the total premiums paid (excluding any premiums
paid during a grace period). The non-preferred loan amount is equal to any
portion of the loan balance that exceeds the preferred loan amount.
Loan Repayment. You may repay all or part of your loan balance at any time
while the insured is living and the policy is in force. Loan repayments must be
at least $200 each (or the outstanding loan balance, if less). Upon repayment
of the loan balance, the portion of the repayment allocated to a variable
investment division will be transferred from the fixed account to increase the
value in that variable investment division. The repayment will be allocated
among the variable investment divisions and the fixed account based on the
instructions for net premium allocations then in effect unless you give us
other instructions. Any payment received when a loan is outstanding will be
treated as a premium unless you tell us it is a loan repayment.
Effect of Policy Loan. A policy loan will affect your policy in several ways
over time, whether or not it is repaid, because the investment results of the
variable investment divisions may be less than or greater than the net interest
rate credited on the amount transferred to the fixed account securing the loan.
First, by comparison to a policy under which no loan has been made, your policy
value will be less if this fixed account net interest rate is less than the
investment return of the applicable variable investment divisions and greater
if the fixed account net interest rate is higher than the investment return of
the applicable variable investment divisions.
Second, if the death benefit becomes payable while a policy loan is
outstanding, the loan balance will be deducted in calculating the death benefit
proceeds.
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Third, your policy will terminate if the loan balance exceeds the cash
surrender value on any monthly anniversary and the death benefit guarantee is
not in effect. We will send you, and any assignee of record, notice of the
termination. You will have a 61-day grace period to pay a sufficient
additional premium to avoid termination. If your policy terminates, there may
be tax consequences.
The tax treatment of the preferred loan amount is unclear, so consult your
tax advisor before taking a loan.
Requesting Payments
Written requests for payment must be sent to our administrative office or
given to an authorized United Investors agent for forwarding to this office.
We will ordinarily pay any death benefit, loan amount, net cash surrender
value or partial surrender amounts within seven days after we receive at our
administrative office all the documents required for such a payment. Other
than the death benefit, which is determined as of the date of the insured's
death, the amount of any payment will be determined as of the date our
administrative office receives all required documents.
Telephone requests may be allowed by us in certain circumstances.
We may delay making a payment of any amount from the variable investment
divisions or processing a transfer request if:
(a) the disposal or valuation of the Variable Account's assets is not
reasonably practicable because
(i) the New York Stock Exchange is closed for other than a regular
holiday or weekend,
(ii) trading is restricted by the SEC, or
(iii) the SEC declares that an emergency exists; or
(b) the SEC by order permits postponement of payment to protect our policy
owners.
We may defer payment of proceeds from the fixed account for up to six months
from the date we receive the request. If we defer payment for more than 30
days, we will pay interest on the amount deferred at an effective annual rate
of at least 4%. However, we will not defer payment of a withdrawal or policy
loan requested to pay a premium due on a United Investors policy. We also may
defer making payments attributable to a premium check that has not cleared
your bank.
The policy offers a wide variety of optional ways of receiving proceeds
payable under the policy other than in a lump sum. An authorized United
Investors agent can explain these options to you. None of these options varies
with the investment performance of a variable investment division because they
are all forms of fixed-benefit annuities.
Policy Changes
We may make changes in the policy at any time if we believe the changes are
necessary:
(a) to assure compliance at all times with the definition of life insurance
prescribed by the Internal Revenue Code;
(b) to make the policy, our operations, or the operation of the Variable
Account conform with any law or regulation issued by any government
agency to which they are subject; or
(c) to reflect a change in the operation of the Variable Account, if
allowed by the policy.
Only an officer of United Investors has the right to change the policy. No
agent has the authority to change the policy or waive any of its terms. All
endorsements, amendments, or riders must be signed by one of our officers to
be valid.
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Reports to Owners
At least once a year, you will be sent a report showing information about
your policy for the period covered by the report. You will also be sent an
annual and a semi-annual report for each portfolio underlying a variable
investment division to which you have allocated net premiums or transferred
policy value, as required by the 1940 Act. In addition you will receive a
written confirmation of each transaction when you pay premiums, make a partial
surrender, make transfers, or take out a policy loan.
Other Policy Provisions
The policy contains provisions addressing the following matters:
Dividends. The policy is non-participating. This means that no dividends
will be paid on the policy. The policy will not share in our profits or surplus
earnings.
Incontestability. After the policy has been in force during the insured's
lifetime for a period of two years from the policy's effective date, the policy
limits our right to contest the policy as issued, except for material
misstatements contained in any application. This also applies to reinstatements
and increases in the face amount, for two years after the reinstatement date or
effective date of the increase.
Suicide Exclusion. The policy limits the death benefit if the insured dies
by suicide, generally within two years after the policy's effective date or
effective date of the increase. In this instance, our liability will be limited
to the total premiums paid less any partial surrenders and any loan balance.
Reinstatement. The policy may be reinstated at any time within five years
after the policy has terminated at the end of the grace period. To reinstate
the policy, the policy owner must:
(a) submit an application for reinstatement;
(b) provide evidence of insurability satisfactory to us;
(c) pay or agree to reinstatement of any loan balance; and
(d) pay the premium required to reinstate the policy.
The reinstatement date for the policy will be the monthly anniversary on or
following the day we approve the application for reinstatement. (See the policy
form for additional information.)
Misstatement of Age or Sex. The death benefit will be adjusted if the
insured's age or sex has been misstated in the application. The benefits paid
will be those which the last monthly cost of insurance charge would have
provided at the correct age and sex.
Paid-Up Insurance Option. If premium payments cease, insurance under the
policy and any supplemental benefits provided by rider will continue as
provided under the grace period provisions described under "Premiums to Prevent
Termination." The policy will not continue beyond its maturity date. Any
supplemental benefits added by a rider will not continue beyond the termination
date described in the rider.
Entire Contract. The entire contract is made up of the policy and the
written application. All statements made in the application, in the absence of
fraud, are considered representations and not warranties. We can use only the
statements made in the written application to defend a claim or void the
policy.
Assignment and Change of Owner
You may assign the policy subject to its terms. We will not be deemed to
know of an assignment unless we receive a written copy of it at our
administrative office. We assume no responsibility for the validity or effect
of any assignment. In certain circumstances, an assignment may be a taxable
event. (See "Tax Considerations" below.) You may change the policy owner by
sending a written request to us while the
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insured is alive and the policy is in force. The change will take effect the
date you sign the request, but the change will not affect any action we have
taken before we receive the request. A change of policy owner may have tax
consequences. (See "Tax Considerations.") A change of policy owner does not
change the beneficiary designation. (See "Beneficiary.") Any such assignment or
change must be in a written form acceptable to us.
Supplemental Benefits
Your policy may have supplemental benefits which are attached to the policy
by rider. A charge will be deducted monthly from your policy value for certain
supplemental benefits. Each supplemental benefit is subject to its own
requirements as to eligibility and cost. You may cancel supplemental benefits
at any time. More details will be included in your policy if you choose any of
these benefits. From time to time, we may make available supplemental benefits
other than those listed below. Contact your agent or our administrative office
for a complete list of the supplemental benefits available.
Accelerated Death Benefit Rider. This benefit allows accelerated payment of
up to 75% of the death benefit (in a lump sum only) while the insured is still
alive, if the insured is diagnosed as having a terminal illness expected to
cause death within 12 months (unless a shorter period is required by state
law). There is no charge for this rider prior to the time the accelerated
benefits are paid.
Accidental Death Benefit Rider. This benefit will be paid if the insured
dies as a result of an accident before age 70.
Children's Term Insurance Rider. This benefit allows you to add death
benefit coverage for your children.
Additional Insured Term Insurance Rider. This benefit allows you to provide
for death benefits on up to five family members (spouse and/or children).
Disability Waiver of Monthly Deduction Rider. The benefit provides for
waiver of monthly deductions after the insured has been totally disabled for
six months. The disability must commence after the policy's effective date and
prior to age 60. The waiver continues as long as total disability continues.
Charges and Deductions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We deduct the charges described below from your policy. Certain of the
charges depend on a number of variables, and are illustrated in the
hypothetical illustrations depicted in this prospectus. The charges are for the
services and benefits provided, costs and expenses incurred and risks assumed
by us under or in connection with the policy. We intend to make a profit from
these charges.
Services and benefits we provide include:
(a) the death benefits, cash and loan benefits provided by the policy;
(b) funding choices, including net premium allocations, dollar-cost
averaging programs;
(c) administration of various elective options under the policy; and
(d) the distribution of various reports to policy owners.
Costs and expenses we incur include:
(a) those associated with underwriting applications and changes in face
amount and riders;
(b) various overhead and other expenses associated with providing the
services and benefits provided by the policy;
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(c) sales and marketing expenses; and
(d) other costs of doing business, such as Federal, state and local premium
and other taxes and fees.
Risks we assume include the risks that:
(a) insureds may live for a shorter period of time than estimated,
resulting in the payment of greater death benefits than expected; and
(b) the costs of providing the services and benefits under the policy will
exceed the charges deducted.
Premium Expense Charge
We deduct a 3.5% charge from each premium before allocating the resulting
net premium to the policy value. This charge is deducted for state premium
taxes and Federal income tax treatment of deferred acquisition costs.
Mortality and Expense Risk Charge
We deduct a daily charge from assets in the variable investment divisions
for certain mortality and expense risks we bear. This charge is currently at an
effective annual rate of 0.90% of Variable Account assets during the first ten
policy years, and at an effective annual rate of 0.70% thereafter. The maximum
mortality and expense risk charge is 0.90% of Variable Account assets for all
policy years. The mortality and expense risk charge does not apply to fixed
account assets. Our profit, if any, from this charge may be used for any
purpose, including distribution expenses.
Monthly Deduction
We deduct a monthly deduction from your policy value on the policy's
effective date and on each monthly anniversary. This charge is deducted from
the Variable Account and the fixed account on a pro rata basis. The monthly
deduction for each policy consists of:
(a) the cost of insurance charge discussed below;
(b) a monthly administrative charge (currently this is $5.00 per month; it
may increase to a maximum charge of $7.50 per month);
(c) the guaranteed death benefit charge ($0.01 per $1,000 of the policy's
face amount) as long as the death benefit guarantee remains in effect;
and
(d) charges for any supplemental benefits added by riders to the policy.
(See "Supplemental Benefits.")
Surrender Charge
If you surrender the policy before the end of the 16th policy year, we will
deduct a surrender charge based on its face amount at issue. We also deduct the
surrender charge if you surrender the policy before the end of the 16th year
following an increase in its face amount (based on the amount of the increase).
The surrender charge will be deducted before any surrender proceeds are paid. A
pro rata portion of the surrender charge will also be deducted for any face
amount decreases.
The surrender charge varies based on the insured's age on the policy's
effective date or at the time of an increase in face amount, and is calculated
as an amount per $1,000 of face amount. The surrender charge remains level for
the first five policy years (or the first five years after a face amount
increase) and declines each year thereafter until it reaches zero at the end of
the 16th policy year (or at the end of the 16th year after a face amount
increase).
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During the first five policy years (or first five years after a face amount
increase) the surrender charge per $1,000 of face amount is as follows for
selected ages of the insured:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Insured's Age at Issue: 25 35 45 50 55 65 75
- ----------------------------------------------------------------------------------------
Charge per $1,000 $6.00 $7.00 $8.75 $10.00 $11.50 $16.75 $26.00
of Face Amount:
</TABLE>
For example, if a 50-year old purchases a policy insuring his or her own
life with a $100,000 face amount and completely surrenders it within five
years, the surrender charge would be $1,000 ($10.00 per $1,000 of face amount,
applied to $100,000 of face amount). (See Appendix A for a complete list of
applicable surrender charges.)
Although the surrender charge (as a percentage of face amount) increases
with the insured's issue age, the surrender charge as a percentage of premiums
could actually decrease as the insured's issue age increases. This occurs
because the premiums required for a specified face amount are higher for an
insured with an older issue age than for an insured with a younger issue age.
This means that for the same premium an older insured's policy is likely to
have a lower face amount. Therefore the surrender charge for an insured with an
older issue age could actually represent a lower portion of the premiums than
it does for an insured with younger issue age.
Partial Surrender Charge
A partial surrender charge equal to (a) the lesser of $25 or 2% of the
partial surrender amount, plus (b) a portion of the surrender charge, will
apply to each partial surrender. The portion of the surrender charge is (i) the
percentage of the net cash surrender value requested, multiplied by (ii) the
surrender charge then in effect. This charge will be deducted from your policy
value along with the partial surrender amount. (See "Partial Surrenders.")
Other Charges
For a description of the investment advisory fees and other expenses
incurred by the Portfolios, see the "Summary" on page 2 of this prospectus and
the accompanying prospectus for Target/United Funds, Inc.
Cost of Insurance
The cost of insurance is the primary charge for the death benefit provided
by your policy. The cost of insurance charge depends on a number of variables
that cause the charge to vary from policy to policy and from monthly
anniversary to monthly anniversary. The cost of insurance charge is equal to
(a) multiplied by the result of (b) minus (c) where:
(a) is the cost of insurance rate divided by 1,000;
(b) is the death benefit at the beginning of the policy month divided by
1.0032737; and
(c) is the policy value at the beginning of the policy month.
The policy value used in this calculation is the policy value before
deduction of the monthly cost of insurance charge and cost of insurance for any
disability waiver of monthly deductions rider, but after monthly deductions for
any other riders and charges.
The cost of insurance rate is the rate applied to the insurance under the
policy to determine the monthly cost of insurance charge. The cost of insurance
rate is based on the insured's attained age, sex, and applicable risk class as
well as the duration of the policy. We currently place insureds in the
following risk classes (available for male or female) when we issue the policy,
based on our underwriting:
. Preferred;
. Standard Non-Tobacco;
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. Standard Tobacco;
. Substandard Non-Tobacco; and
. Substandard Tobacco.
The original risk class applies to the policy's initial face amount. If an
increase in face amount is approved, a different risk class may apply to the
increase, based on the insured's circumstances at the time of the increase. If
you have selected death benefit option A, and if there have been any increases
in the face amount, the policy value will be considered a part of the initial
face amount when the charge is calculated. If the policy value exceeds the
initial face amount, the excess will be considered part of the increases in
face amount in the order of the increases.
We guarantee that the cost of insurance rates used to calculate the monthly
cost of insurance charge will not exceed the maximum cost of insurance rates
set forth in the policy. The maximum cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Mortality Tables, Male or Female, Smoker
or Non-Smoker, Age Last Birthday, or a multiple thereof for substandard
classes. (See "Hypothetical Illustrations" for examples showing the effects of
the cost of insurance charge.)
Reduction in Charges for Certain Groups
We may waive or reduce the administrative charge, the guaranteed death
benefit charge, the premium expense charge, and the surrender charges on
policies that have been sold to:
(a) our employees and sales representatives, or those of our affiliates or
distributors of the policy; or
(b) individuals or groups of individuals where the sale of the policy
results in savings of administrative or commission expenses.
Policy Values
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Policy Value
The policy value serves as a starting point for calculating values under a
policy. The policy value is the sum of the variable account value and the fixed
account value credited to the policy. The policy value is determined first on
the policy's effective date and thereafter on each business day. On the
maturity date, the proceeds payable under a policy are equal to the policy
value less any loan balance. The policy value will vary to reflect:
(a) the performance of the variable investment divisions to which amounts
have been allocated;
(b) interest credited on amounts allocated to the fixed account and loan
balance;
(c) charges;
(d) transfers;
(e) partial surrenders; and
(f) policy loans (including loan repayments).
The policy value may be more or less than premiums paid.
The cash surrender value is the policy value reduced by any surrender
charge.
The net cash surrender value is the cash surrender value reduced by any loan
balance. You will receive only the net cash surrender value if you surrender
your policy.
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Variable Account Value
The variable account value is the sum of the values of the variable
investment divisions under the policy. On the policy's effective date, the
value of each variable investment division is equal to:
(a) the initial net premium allocated to that variable investment division;
plus
(b) any accrued interest from the date of receipt of the premium to the
policy's effective date; minus
(c) the portion of the first month's monthly deduction allocated to that
variable investment division.
On any business day thereafter, the value of each variable investment division
is equal to:
(a) the value of the variable investment division on the preceding business
day, multiplied by the appropriate net investment factor (described
below) for the current business day; plus
(b) the sum of all net premiums allocated to the variable investment
division since the previous business day; plus
(c) the sum of all loan repayments allocated to the variable investment
division since the previous business day; plus
(d) the amount of any transfers from other variable investment divisions or
the fixed account to the variable investment division since the
previous business day; minus
(e) the amount of any transfers to other variable investment divisions or
to the fixed account, including amounts transferred to secure a policy
loan, from the variable investment division since the previous business
day; minus
(f) the portion of any partial surrenders (including surrender charges) or
charges for any face amount decreases allocated to the variable
investment division since the previous business day; minus
(g) the portion of the monthly deduction allocated to the variable
investment division since the previous business day.
Unit Values. When you allocate an amount to a variable investment division,
either by net premium allocation, transfer of policy value or repayment of a
policy loan, your policy is credited with units in that variable investment
division. The number of units is determined by dividing (i) the amount
allocated, transferred or repaid to the variable investment division by (ii)
the variable investment division's unit value for the business day when the
allocation, transfer or repayment is effected. The number of units credited to
a policy will decrease when:
(a) the allocated portion of the monthly deduction is taken from the
variable investment division;
(b) a policy loan is taken from the variable investment division;
(c) an amount is transferred from the variable investment division; or
(d) a partial surrender is taken from the variable investment division.
The number of the variable investment division's units may also decrease if the
policy's face amount is decreased.
A variable investment division's unit value is an index we use to measure
investment performance. Each variable investment division's unit value varies
to reflect the investment experience of its underlying portfolio, and may
increase or decrease from one business day to the next. Each variable
investment division's unit value
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was arbitrarily set at $1.00 when the variable investment division was
established. The unit value is determined on each business day by multiplying
the unit value for the variable investment division on the prior business day
by the variable investment division's net investment factor for the current
business day.
Net Investment Factor. The net investment factor is an index used to measure
the investment performance of a variable investment division from one business
day to the next. The net investment factor for any variable investment division
for any business day is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division determined at the end of the current
business day; plus
(2) the per share amount of any dividend or capital gain distributions
on the portfolio shares held in the variable investment division, if
the "ex-dividend" date occurs during the current business day; plus
or minus
(3) a charge or credit for any taxes reserved for the current business
day which we determine to have resulted from the investment
operations of the variable investment division;
(b) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division, determined at the end of the last
prior business day; plus or minus
(2) the charge or credit for any taxes reserved for the last prior
business day; and
(c) is a deduction for the current mortality and expense risk charge.
Fixed Account Value
On the policy's effective date, the fixed account value is equal to:
(a) the initial net premium allocated to the fixed account; plus
(b) any accrued interest from the date of receipt of the premium to the
policy's effective date; minus
(c) the portion of the first month's monthly deduction allocated to the
fixed account.
On any monthly anniversary thereafter, the fixed account value is equal to:
(a) the fixed account value on the preceding monthly anniversary; plus
(b) the sum of all net premiums allocated to the fixed account since the
previous monthly anniversary; plus
(c) the sum of all policy loan repayments allocated to the fixed account
since the previous monthly anniversary; plus
(d) total interest credited to the fixed account since the previous monthly
anniversary; plus
(e) the amount of any transfers from the variable investment divisions to
the fixed account, including amounts transferred to secure policy
loans, since the previous monthly anniversary; minus
(f) the amount of any transfers from the fixed account to the variable
investment divisions since the previous monthly anniversary; minus
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(g) the portion of any partial surrenders (including surrender charges) or
charges for any face amount decreases allocated to the fixed account
since the previous monthly anniversary; minus
(h) the portion of the monthly deduction allocated to the fixed account
since the previous monthly anniversary.
Death Benefits
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If the insured dies while the policy is in force and prior to the policy's
maturity date, we will pay the death benefit when we receive satisfactory proof
at our administrative office of the insured's death. (See "Requesting
Payments.") The death benefit will be paid to the beneficiary.
Amount of Death Benefit Payable
The amount of death benefit payable is:
(a) the amount of insurance determined under the death benefit option in
effect on the date of the insured's death; plus
(b) any supplemental benefits provided by riders; minus
(c) any loan balance on that date; minus
(d) any past due monthly deductions (if death occurred during a grace
period).
Under certain circumstances, the amount of the death benefit may be further
adjusted. (See "Incontestability" and "Misstatement of Age or Sex.")
Death Benefit Options
The amount of insurance depends on the death benefit option in effect on the
date of death.
Death Benefit Option A. The death benefit (amount of insurance) under option
A is the greater of:
(1) the face amount at the beginning of the policy month when the death
occurs; or
(2) the policy value on the date of death, multiplied by the applicable
factor from the table of death benefit factors below.
Under option A, the death benefit ordinarily will not change.
Death Benefit Option B. The death benefit under option B is the greater of:
(1) the face amount at the beginning of the policy month when the death
occurs, plus the policy value on the date of death; or
(2) the policy value on the date of death, multiplied by the applicable
factor from the table of death benefit factors below.
Under option B, the death benefit will vary directly with your policy value.
(To see how and when investment performance of the policy may begin to affect
the death benefit, please see the hypothetical illustrations.)
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Death Benefit Factors. The death benefit factor is a multiple that ranges
between two-and-one-half times and one times the policy value. It is 2.50 up to
the insured's attained age 40 and declines thereafter as the insured's age
increases, as specified in the following table.
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age Factor Age Factor Age Factor Age Factor
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
41 2.43 51 1.78 61 1.28 71 1.13
42 2.36 52 1.71 62 1.26 72 1.11
43 2.29 53 1.64 63 1.24 73 1.09
44 2.22 54 1.57 64 1.22 74 1.07
45 2.15 55 1.50 65 1.20 75-90 1.05
46 2.09 56 1.46 66 1.19 91 1.04
47 2.03 57 1.42 67 1.18 92 1.03
48 1.97 58 1.38 68 1.17 93 1.02
49 1.91 59 1.34 69 1.16 94 1.01
50 1.85 60 1.30 70 1.15 95+ 1.00
</TABLE>
The death benefit factors are based on current requirements under the
Internal Revenue Code. We reserve the right to change the table if the death
benefit factors currently in effect become inconsistent with any Federal income
tax laws and/or regulations.
Changing the Death Benefit Option
You select the death benefit option when you apply for the policy. After the
policy has been in force at least one year, you may change the death benefit
option on your policy, subject to the following rules:
(a) each change must be submitted by written request received by our
administrative office;
(b) once you change the death benefit option, you cannot change it again
for one year;
(c) if you change the death benefit option from A to B, the total death
benefit will remain the same, and the policy's face amount will be
decreased by an amount equal to the policy value on the date of the
change;
(d) if you change the death benefit option from B to A, the total death
benefit will remain the same, and the face amount will be increased by
an amount equal to the policy value on the date of the change. The risk
class for the last face amount portion to go into effect which is still
in force will apply to the face amount increase.
The effective date of the change will be the monthly anniversary on or
following the date when we approve the request for the change. We will send you
revised policy data pages reflecting the new death benefit option and the
effective date of the change. Changing the death benefit option may have tax
consequences. (See "Tax Considerations.")
Changing the Face Amount
You select the policy's face amount when you apply for the policy. After the
policy has been in force at least one year, you may change the face amount on
any monthly anniversary subject to the following requirements. The minimum face
amount after the first policy year is $50,000. Once you change the face amount,
you cannot change it again for one year. No change will be permitted that may
disqualify your policy as a life insurance contract under the Internal Revenue
Code. Changing the face amount of the policy may have tax consequences. (See
"Tax Considerations" below.)
Increasing the Face Amount. To increase the policy's face amount, you must:
(a) submit an application for the increase;
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(b) submit proof satisfactory to us that the insured is an insurable risk;
and
(c) pay any additional premium that is required.
The face amount cannot be increased after the insured's attained age 75.
Each face amount increase must be at least $25,000. A face amount increase will
take effect on the monthly anniversary on or following the day we approve the
application for the increase.
The risk class that applies for any face amount increase may be different
from the risk class that applies for the policy's initial face amount or any
other face amount increase. Upon an increase in face amount, the minimum
monthly premium will be increased, and additional surrender charges equal to
the face amount increase (in $1,000s) multiplied by the surrender charge
factors listed above under "Surrender Charge" will apply for 16 years following
the increase. If the face amount is increased, the cost of insurance will also
increase due to the increased death benefit.
Decreasing the Face Amount. You may decrease the policy's face amount by
submitting a written request. The face amount may not be decreased below the
policy's minimum face amount. The minimum monthly premium for your policy will
be reduced to reflect the decrease. Any decrease will take effect on the later
of:
(a) the monthly anniversary on or following the day we receive the request;
or
(b) the monthly anniversary one year after the date of the last change in
face amount.
A face amount decrease will be used to reduce any previous face amount
increases then in effect starting with the latest increase and continuing in
the reverse order in which the increases were made. If any portion of the
decrease is left after all face amount increases have been reduced, it will be
used to reduce the policy's initial face amount.
We will deduct a charge from the policy value each time the policy's face
amount is decreased. The amount of this charge is the lesser of:
(a) the reduction percentage multiplied by the surrender charge for each
face amount portion reduced; or
(b) the policy value when the decrease is made.
The reduction percentage for each face amount portion reduced is the amount
of the face amount decrease divided by the face amount in effect before the
decrease. The charge will be deducted for each face amount portion reduced.
After the face amount is decreased, future surrender charges for each face
amount portion for which a charge is deducted will be reduced by the surrender
charges shown for that face amount portion, multiplied by the reduction
percentage.
Effect of Partial Surrenders on the Death Benefit
A partial surrender will affect your policy's death benefit in the following
respects:
(a) If death benefit option A is in effect, the policy's face amount will
be reduced by the partial surrender amount. If the face amount reflects
increases in the policy's initial face amount, any partial surrender
will reduce first the most recent increase, and then the next most
recent increase, if any, in reverse order, and finally the policy's
initial face amount.
(b) If death benefit option B is in effect, the total death benefit is also
reduced by the partial surrender amount, but the policy's face amount
is not affected.
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Beneficiary
You designate the beneficiary (or beneficiaries) when you apply for the
policy. You may change the designated beneficiary (or beneficiaries) by
submitting a satisfactory written request to us. The change will take effect on
the date the request was signed, but it will not apply to payments we make
before we accept the written request. If no beneficiary is living at the
insured's death, we will pay the death benefit proceeds to you, if living, or
to your estate.
Tax Considerations
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The following discussion is general and is not intended as tax advice.
Introduction
The following summary provides a general description of the Federal income
tax considerations relating to the policy. This summary is based upon our
understanding of the present Federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). Because of the complexity
of such laws and the fact that tax results will vary according to the factual
status of the specific policy involved, tax advice from a qualified tax advisor
may be needed by a person contemplating the purchase of a policy or the
exercise of certain elections under the policy. These comments concerning
Federal income tax consequences are not an exhaustive discussion of all tax
questions that might arise under the policy. Further, these comments do not
take into account any Federal estate tax and gift, state, or local tax
considerations which may be involved in the purchase of a policy or the
exercise of certain elections under the policy. For complete information on
such Federal and state tax considerations, a qualified tax advisor should be
consulted. We do not make any guarantee regarding the tax status of any policy,
and the following summary is not intended as tax advice.
Tax Status of the Policy
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
policies should satisfy the applicable requirements. There is less guidance,
however, with respect to policies issued on a substandard basis and it is not
clear whether such policies will in all cases satisfy the applicable
requirements. If it is subsequently determined that a policy does not satisfy
the applicable requirements, we may take appropriate steps to bring the policy
into compliance with such requirements and we reserve the right to restrict
policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the policies, such as the flexibility of a policy owner to allocate
premium payments and policy values, have not been explicitly addressed in
published rulings. While we believe that the policies do not give policy owners
investment control over Variable Account assets, we reserve the right to modify
the policies as necessary to prevent a policy owner from being treated as the
owner of the Variable Account assets supporting the policy.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through Target/United Funds, Inc. will satisfy these
diversification requirements.
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The following discussion assumes that the policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a policy should be
excludable from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of policy proceeds
depend on the circumstances of each policy owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the policy owner will not be deemed to be in constructive receipt
of the policy value until there is a distribution. When distributions from a
policy occur, or when loans are taken out from or secured by a policy, the tax
consequences depend on whether the policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. A policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to
the death benefit provided under such policy. The premium limitation rules for
determining whether such a policy is a modified endowment contract are
extremely complex. In general, however, a policy will be a modified endowment
contract if the accumulated premiums paid at any time during the first seven
policy years exceed the sum of the net level premiums which would have been
paid on or before such time if the policy provided for paid-up future benefits
after the payment of seven level annual premiums.
In addition, if a policy is "materially changed," it may cause such policy
to be treated as a modified endowment contract. The material change rules for
determining whether a policy is a modified endowment contract are also
extremely complex. In general, however, the determination whether a policy will
be a modified endowment contract after a material change depends upon the
relationship of the death benefit at the time of change to the policy or cash
value at the time of such change and the additional premiums paid in the seven
policy years starting with the date on which the material change occurs.
The manner in which the premium limitation and material change rules should
be applied to certain features of the policy and its riders is unclear.
Nonetheless, under our current procedures, the policy owner will be notified at
the time a policy is issued whether, according to our calculations, the policy
is or is not classified as a modified endowment contract based on the premium
then received.
Due to the policy's flexibility, classification of a policy as a modified
endowment contract will depend upon the circumstances of each policy.
Accordingly, a prospective policy owner should contact a qualified tax advisor
before purchasing a policy to determine the circumstances under which the
policy would be a modified endowment contract. In addition, a policy owner
should contact a competent tax advisor before making any change to, including
an exchange of or reduction in benefits of, a policy to determine whether such
change would cause the policy (or the new policy in the case of an exchange) to
be treated as a modified endowment contract.
If a policy becomes a modified endowment contract, distributions such as
partial surrenders and policy loans that occur during the policy year it
becomes a modified endowment contract and any subsequent policy year will be
taxed as distributions from a modified endowment contract. In addition,
distributions from a policy within two years before it becomes a modified
endowment contract will be taxed in this manner. This means that a distribution
made from a policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract.
Whether a policy is or is not a modified endowment contract, upon a complete
surrender or a lapse or termination of a policy or when benefits are paid at
its maturity date, if the amount received plus the amount of any indebtedness
exceeds the total investment in the policy, the excess will generally be
treated as ordinary income subject to tax.
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Distributions Other than Death Benefits from Policies Classified as Modified
Endowment Contracts. Policies classified as modified endowment contracts will
be subject to the following tax rules:
(1) First, all distributions, including distributions upon surrender and
benefits paid at maturity, from such a policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of
the policy value immediately before the distribution over the
"investment in the policy" (described below) at such time.
(2) Second, loans taken from, or secured by, such a policy (including
unpaid loan interest that is added to the principal of a loan) are
treated as distributions from such a policy and taxed accordingly.
(3) Third, a 10 percent additional tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a policy that
is included in income except where the distribution or loan:
(a) is made on or after the policy owner reaches actual age 59 1/2,
(b) is attributable to the policy owner's becoming disabled, or
(c) is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the policy owner or the joint
lives (or joint life expectancies) of the policy owner and the
policy owner's beneficiary.
Distributions Other than Death Benefits from Policies that Are Not Modified
Endowment Contracts. Distributions other than death benefits from a policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the policy owner's investment in the policy and only after the
recovery of all investment in the policy as taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for Federal income tax purposes if policy
benefits are reduced during the first 15 policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences
associated with policy loans that are outstanding after the first 15 policy
years are less clear and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
Policy Loan Interest. Interest paid on a policy loan generally is not tax-
deductible. The policy owner should consult a competent tax advisor if the
deductibility of interest paid on a policy loan is an important issue.
Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any premiums or other consideration paid for a
policy; minus
(b) the aggregate amount received under the policy which is excluded from
the gross income of the policy owner (except that the amount of any
loan from, or secured by, a policy that is a modified endowment
contract, to the extent such amount is excluded from gross income, will
be disregarded); plus
(c) the amount of any loan from, or secured by, a policy that is a modified
endowment contract to the extent that such amount is included in the
gross income of the policy owner.
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Multiple Policies. All modified endowment contracts that are issued by us
(or our affiliates) to the same policy owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includable in gross income.
Accelerated Death Benefit Rider. We believe that payments received under the
accelerated death benefit rider should be fully excludable from the gross
income of the beneficiary if the beneficiary is the insured under the policy.
(See "Accelerated Death Benefit Rider" for more information regarding the
rider.) However, you should consult a qualified tax advisor about the
consequences of adding this rider to a policy or requesting payment under this
rider.
Other Policy Owner Tax Matters. The tax consequences of continuing the
policy beyond the insured's 100th year are unclear. You should consult a tax
advisor if you intend to keep the policy in force beyond the insured's 100th
year.
Businesses can use the policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the policy for any arrangement the value of which depends in
part on its tax consequences, you should consult a qualified tax advisor. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
policy or a change in an existing policy should consult a tax advisor.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the policy
could change by legislation or otherwise. Consult a tax advisor with respect to
legislative developments and their effect on the policy.
Taxation of United Investors
We incur state and local premium taxes, and Federal income taxes resulting
from the treatment of deferred acquisition costs. The amount of the charge we
deduct for such taxes is discussed above under "Charges and Deductions." At the
present time, we make no charge to the Variable Account for any other Federal,
state or local taxes that it incurs which may be attributable to the Variable
Account or to the policies. Nevertheless, we reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to
the Variable Account or to the policies.
Employment-Related Benefit Plans
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The policies described in this
prospectus contain guaranteed purchase rates for certain payment options that
generally distinguish between men and women. Accordingly, employers and
employee organizations should consider, in consultation with their legal
counsel, the impact of Norris, and Title VII generally, on any employment-
related insurance or benefit program for which a policy may be purchased.
Other Information
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United Investors Life Insurance Company
We were incorporated in the State of Missouri on August 17, 1981, as the
successor to a company of the same name established in Missouri on September
27, 1961. We are a stock life insurance company, indirectly
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owned by Torchmark Corporation. Our principal business is selling life
insurance and annuity contracts. We are admitted to do business in the District
of Columbia and all states except New York.
Preparing for Year 2000. The new millennium poses a significant concern to
all businesses which use computer systems or electronic data in their
operations. This concern arises because these organizations have existing
computer systems and programs that cannot always identify a proper date. For
many years, programs were written using a two digit code to represent a year.
At the beginning of the year 2000, more digits are needed to accurately
determine the date in these programs. Without addressing this issue, many
computer programs could fail or produce erroneous results. Additionally,
companies which communicate electronically with other businesses or which rely
on other businesses for services are exposed to risk of failure by the
electronic devices and computer systems of those other entities to the extent
they are not Year 2000 compliant. The potential failure of these systems
creates considerable uncertainty and could potentially adversely affect the
ongoing operations and stability of a business.
We are exposed to these risks should our computer systems fail due to date-
related problems. We also rely on a number of third party businesses and
governmental agencies that we either communicate electronically with or depend
on for services in conducting our business. These institutions include but are
not limited to banks, financial institutions, telecommunication companies,
utilities, mail delivery organizations, and a variety of governmental agencies.
If our computer systems or the systems of our third-party business partners are
not compliant, we may be exposed to considerable risks, including business
interruption, loss of revenue, increased expense, loss of policyholders, and
litigation.
To reduce our business risk to an acceptable level, we have established a
project plan to insure that our business-critical computer systems will be Year
2000 compliant. This plan also addresses third-party compliance issues. Under
the direction of executive management, objectives and timetables have been set
forth to achieve compliance. Progress toward achieving those objectives is
constantly monitored. We expect the entire project, including all Year 2000
testing activities, to be completed during 1999.
We remain on schedule to meet all of our Year 2000 compliance requirements.
All known required software changes were completed in 1998, and the related
testing is in process with plans for completion in 1999. With regard to third
party concerns, we are:
1. confirming with our software vendors the Year 2000 readiness of
purchased software packages;
2. verifying the Year 2000 compliance status of our financial business
partners' computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3. evaluating all of our electronic operational systems (telephones,
security, utility, environmental) for Year 2000 compliance.
While we are making every effort to verify the compliance of third parties, no
assurances as to the compliance of their computer systems can be given.
We have primarily used our internal staff to complete our Year 2000 project.
Other than completion of software testing, all significant Year 2000 project
milestones for internal computer systems have been completed. Confirmation of
third party compliance and electronic data interface testing with third parties
is continuing with completion expected during 1999. We have spent $130,000 on
our Year 2000 project activities to date, including internal programming costs,
outside contractors, and replacement costs. These costs have been expensed as
incurred. Total project cost is expected to be approximately $150,000.
Year 2000 contingency plans are being developed for critical risk areas.
Management is establishing and documenting contingency plans for most critical
systems and interfaces with business partners within each individual's
responsibility. Such contingency plans include possible manual operation
efforts, staff adjustments, outside services, and alternative procedures. These
contingency plans will be maintained well into 2000.
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Published Ratings. We may publish (in advertisements, sales literature, and
reports to policy owners) the ratings and other information assigned to us by
one or more independent insurance industry analysts or rating organizations
such as A. M. Best Company, Standard & Poor's Corporation, and Weiss Research,
Inc. These ratings reflect the organization's current opinion of an insurance
company's financial strength and operating performance in comparison to the
norms for the insurance industry; they do not reflect the strength,
performance, risk, or safety (or lack thereof) of the variable investment
divisions. The claims-paying ability rating as measured by Standard & Poor's is
an opinion of an operating insurance company's financial capacity to meet its
obligations under its outstanding insurance and annuity policies.
Sale of the Policies
Waddell & Reed, Inc. of 6300 Lamar, Overland Park, Kansas, is the principal
underwriter of the policies. Waddell & Reed, Inc. is a corporation organized
under the laws of the state of Delaware in 1981, is registered as a broker-
dealer under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"). The Policies may
not be available in all states. Waddell & Reed, Inc. may enter into written
sales agreements with various broker-dealers to aid in the sale of the
policies. A commission plus bonus compensation may be paid to broker-dealers or
agents in connection with sales of the policies.
Changing the Variable Account
We have the right to make changes to, and to modify how we operate, the
Variable Account. Specifically, we have the right to:
(a) add investment divisions to, or remove investment divisions from, the
Variable Account;
(b) combine the Variable Account with other separate accounts;
(c) replace the shares of a portfolio by substituting shares of another
portfolio of Target/United Funds, Inc. or another investment company
(1) if shares of the portfolio are no longer available for investment,
or
(2) if, in our judgment, continued investment in the portfolio is
inappropriate in view of the purposes of the Variable Account;
(d) end the registration of the Variable Account under the 1940 Act;
(e) disregard instructions from policy owners (only if required by state
insurance regulatory authorities or otherwise pursuant to insurance law
or regulation) regarding a change in the investment objectives of a
portfolio or the approval or disapproval of an investment advisory
agreement; and
(f) operate the Variable Account or one or more of its investment divisions
in any other form allowed by law, including a form that permits direct
investments in individual securities (rather than solely investments in
a mutual fund shares).
Voting of Portfolio Shares
We are the legal owner of portfolio shares held in the investment divisions
of the Variable Account and therefore have the right to vote on all matters
submitted to shareholders of the portfolios. However, to the extent required by
law, we will vote shares held in the variable investment divisions at meetings
of the shareholders of the portfolios in accordance with instructions received
from policy owners. Target/United Funds, Inc. does not hold regular annual
shareholder meetings. To obtain voting instructions from policy owners before a
meeting of shareholders of a particular portfolio, we may send voting
instruction material, a
30
<PAGE>
voting instruction form and any other related material to policy owners with
policy value in the variable investment division corresponding to that
portfolio. We will vote shares held in a variable investment division for which
no timely instructions are received in the same proportion as those shares for
which voting instructions are received. If the applicable Federal securities
laws, regulations or interpretations thereof change to permit us to vote shares
of the portfolios in our own right, then we may elect to do so. We may, if
required by state insurance officials, disregard policy owners' voting
instructions if such instructions would require us to vote the shares so as to
cause a change in sub-classification or investment objectives of one or more of
the portfolios, or to approve or disapprove an investment advisory agreement.
In addition, we may under certain circumstances disregard voting instructions
that would require changes in the investment policy or investment adviser of a
portfolio, provided that we reasonably disapprove of such changes in accordance
with applicable Federal regulations. If we ever disregard voting instructions,
policy owners will be advised of that action and of our reasons for doing so in
our next report to policy owners.
Addition, Deletion, or Substitution of Investments
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of Target/United
Funds, Inc. that are held by the Variable Account (or any of its investment
divisions) or that the Variable Account (or any of its investment divisions)
may purchase. We reserve the right to eliminate the shares of any of the
portfolios of Target/United Funds, Inc. and to substitute shares of another
portfolio of Target/United Funds, Inc. or any other investment vehicle or of
another open-end, registered investment company if:
(a) laws or regulations are changed;
(b) the shares of Target/United Funds, Inc. or one of its portfolios are no
longer available for investment, or;
(c) in our judgment, further investment in any portfolio becomes
inappropriate in view of the purposes of the Investment Division.
We will not substitute any shares attributable to your interest in an
investment division of the Variable Account without notice and prior approval
of the U.S. Securities and Exchange Commission and the insurance regulator of
the state where the policy was delivered, if required. Nevertheless, the
representations in this prospectus will not prevent the Variable Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by policy owners.
We also reserve the right to establish additional investment divisions of
the Variable Account, each of which would invest in a new portfolio of
Target/United Funds, Inc., or in shares of another investment company or
suitable investment, with a specified investment objective. We may establish
new variable investment divisions when, in our sole discretion, marketing needs
or investment conditions warrant. We may make available any new variable
investment divisions to existing policy owners, and will do so on a basis that
we will determine. We may also eliminate one or more variable investment
divisions if, in our sole discretion, marketing, tax, or investment conditions
warrant.
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in this and other policies as may be necessary
or appropriate to reflect such substitution or change. If we deem it to be in
the best interests of persons having voting rights under the policies, the
Variable Account may be:
(a) operated as a management company under the Investment Company Act of
1940;
(b) deregistered under that Act in the event such registration is no longer
required; or
(c) combined with other United Investors separate accounts.
31
<PAGE>
Other Information
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. That information may be obtained at the SEC's principal office in
Washington, D.C. by paying the SEC's prescribed fees.
Litigation
No legal or administrative proceeding is pending that would have a material
effect upon the Variable Account.
Legal Matters
Legal advice regarding certain matters relating to Federal securities laws
applicable to the issuance of the policy described in this prospectus has been
provided by Sutherland Asbill & Brennan LLP of Washington, D.C.
Experts
The balance sheets of United Investors Life Insurance Company as of December
31, 1998 and 1997, and the related statements of operations, comprehensive
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998 and the balance sheet of United
Investors Universal Life Variable Account as of December 31, 1998 and the
related statement of operations and changes in net assets for each of the years
in the two-year period ended December 31, 1998 have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by W.
Thomas Aycock, Vice President and Chief Actuary of United Investors, whose
opinion is filed as an exhibit to the registration statement.
Financial Statements
Our financial statements which are included in Appendix E to this prospectus
should be considered only as bearing on our ability to meet our obligations
under the policies. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
32
<PAGE>
Appendix A:
Surrender Charges Per $1,000 of Face Amount
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issue Year Year Year Year Year Year Year Year Year Year Year Year
Age 1-6 7 8 9 10 11 12 13 14 15 16 17+
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-
25 $6.00 $5.45 $4.91 $4.35 $3.82 $3.27 $2.73 $2.18 $1.64 $1.09 $0.55 $0.00
- ---------------------------------------------------------------------------------
26-
30 6.50 5.91 5.32 4.73 4.14 3.55 2.95 2.38 1.77 1.18 0.59 0.00
- ---------------------------------------------------------------------------------
31-
35 7.00 6.36 5.73 5.09 4.45 3.82 3.18 2.55 1.91 1.27 0.64 0.00
- ---------------------------------------------------------------------------------
36-
40 7.75 7.05 6.34 5.84 4.93 4.23 3.52 2.82 2.11 1.41 0.70 0.00
- ---------------------------------------------------------------------------------
41-
45 8.75 7.95 7.16 6.36 5.57 4.77 3.98 3.18 2.39 1.59 0.80 0.00
- ---------------------------------------------------------------------------------
46-
50 10.00 9.09 8.18 7.27 6.36 5.45 4.55 3.64 2.73 1.82 0.91 0.00
- ---------------------------------------------------------------------------------
51-
55 11.50 10.45 9.41 8.36 7.32 6.27 5.23 4.18 3.14 2.09 1.06 0.00
- ---------------------------------------------------------------------------------
56-
60 13.75 12.50 11.25 10.00 8.75 7.50 6.25 5.00 3.75 2.50 1.25 0.00
- ---------------------------------------------------------------------------------
61-
65 16.75 15.23 13.70 12.18 10.66 9.14 7.61 6.09 4.57 3.05 1.52 0.00
- ---------------------------------------------------------------------------------
66-
70 20.75 18.86 16.98 15.09 13.20 11.32 9.43 7.55 5.66 3.77 1.89 0.00
- ---------------------------------------------------------------------------------
71-
75 26.00 23.64 21.27 18.91 16.55 14.18 11.62 9.45 7.09 4.73 2.36 0.00
</TABLE>
Note: These rates are interpolated during each year. The charge shown is for
the beginning of each year. For example, for a 35-year old at issue, during
year 6 the charge declines from $7.00 per $1,000 of Face Amount at the
beginning of the year to $6.36 per $1,000 of Face Amount at the end of the
year.
33
<PAGE>
Appendix B:
Hypothetical Illustrations
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample policy
change with assumed investment performance over an extended period of time. In
particular, they illustrate how policy values, net cash surrender values and
death benefits under a policy, covering an insured of a given age on the
policy's effective date, would vary over time if planned premiums were paid
annually and the return on the assets in the variable investment divisions were
a uniform gross annual rate of 0%, 6% or 12%, before deduction of any fees and
charges, including portfolio expenses. The tables also show planned premiums
accumulated at 5% interest. The values under a policy would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The hypothetical investment rates of
return are illustrative only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return for a particular
policy may be more or less than the hypothetical investment rates of return
used in the illustrations.
The illustrations assume an average annual expense ratio of 0.75% of the
average daily net assets of the portfolios available under the policies, based
on the expense ratios of each of the portfolios for the last fiscal year of
operations and the service fee ("12b-1 fee"), at an annual rate of 0.25%, under
the service plan beginning August 31, 1998. For information on portfolio
expenses, see the Target/United Funds, Inc. prospectus accompanying this
prospectus.
The current illustrations also reflect the 0.90% mortality and expense risk
charge to the Variable Account during the first ten policy years, and 0.70%
thereafter. The guaranteed illustrations reflect the 0.90% maximum mortality
and expense risk charge and the $7.50 maximum monthly administrative charge for
all policy years. After deduction of estimated portfolio expenses and the
current mortality and expense risk charge, the illustrated gross annual
investment rates of return of 0%, 6% and 12% would correspond to approximate
net annual rates of return for the variable investment divisions of -1.90%,
4.10%, and 10.10%, respectively, in policy years 1 through 10 and -1.70%,
4.30%, and 10.30%, respectively, thereafter.
The illustrations also reflect the deduction of the 3.5% premium expense
charge and the monthly deduction for the hypothetical insured. Our current
charges and the higher guaranteed charges we have the contractual right to
deduct from your policy value are reflected in separate illustrations on each
of the following pages. All the illustrations reflect the fact that no charges
for Federal or state income taxes are currently made against the Variable
Account and assume no loan balance or charges for supplemental benefits.
Upon request, we will furnish a comparable illustration based upon the
proposed insured's individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the following
tables.
34
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,000 $100,000 $100,000 $ 706 $ 756 $ 806 $ 6 $ 56 $ 106
2 2,153 100,000 100,000 100,000 1,391 1,536 1,686 691 836 986
3 3,310 100,000 100,000 100,000 2,053 2,337 2,645 1,353 1,637 1,945
4 4,526 100,000 100,000 100,000 2,691 3,159 3,689 1,991 2,459 2,989
5 5,802 100,000 100,000 100,000 3,306 4,005 4,828 2,606 3,305 4,128
6 7,142 100,000 100,000 100,000 3,894 4,871 6,068 3,258 4,235 5,432
7 8,549 100,000 100,000 100,000 4,461 5,761 7,424 3,888 5,188 6,851
8 10,027 100,000 100,000 100,000 5,007 6,681 8,910 4,498 6,172 8,401
9 11,578 100,000 100,000 100,000 5,541 7,635 10,546 5,096 7,190 10,101
10 13,207 100,000 100,000 100,000 6,060 8,627 12,346 5,678 8,245 11,964
11 14,917 100,000 100,000 100,000 6,573 9,669 14,349 6,255 9,351 14,031
12 16,713 100,000 100,000 100,000 7,063 10,744 16,549 6,808 10,489 16,294
13 18,599 100,000 100,000 100,000 7,533 11,854 18,970 7,342 11,663 18,779
14 20,579 100,000 100,000 100,000 7,983 13,004 21,638 7,856 12,877 21,511
15 22,657 100,000 100,000 100,000 8,422 14,202 24,585 8,358 14,138 24,521
16 24,840 100,000 100,000 100,000 8,840 15,441 27,834 8,840 15,441 27,834
17 27,132 100,000 100,000 100,000 9,219 16,706 31,403 9,219 16,706 31,403
18 29,539 100,000 100,000 100,000 9,562 18,002 35,330 9,562 18,002 35,330
19 32,066 100,000 100,000 100,000 9,861 19,323 39,651 9,861 19,323 39,651
20 34,719 100,000 100,000 100,000 10,115 20,668 44,412 10,115 20,668 44,412
21 37,505 100,000 100,000 100,000 10,320 22,038 49,661 10,320 22,038 49,661
22 40,430 100,000 100,000 100,000 10,472 23,429 55,455 10,472 23,429 55,455
23 43,502 100,000 100,000 100,000 10,559 24,833 61,854 10,559 24,833 61,854
24 46,727 100,000 100,000 100,000 10,581 26,254 68,936 10,581 26,254 68,936
25 50,113 100,000 100,000 102,884 10,522 27,678 76,779 10,522 27,678 76,779
26 53,669 100,000 100,000 111,065 10,382 29,110 85,435 10,382 29,110 85,435
27 57,403 100,000 100,000 121,526 10,141 30,536 94,942 10,141 30,536 94,942
28 61,323 100,000 100,000 132,792 9,803 31,961 105,391 9,803 31,961 105,391
29 65,439 100,000 100,000 144,919 9,345 33,371 116,871 9,345 33,371 116,871
30 69,761 100,000 100,000 157,972 8,753 34,760 129,485 8,753 34,760 129,485
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
35
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $100,000 $100,000 $100,000 $ 1,839 $ 1,966 $ 2,095 $ 839 $ 966 $ 1,095
2 5,381 100,000 100,000 100,000 3,607 3,977 4,364 2,607 2,977 3,364
3 8,275 100,000 100,000 100,000 5,331 6,062 6,856 4,331 5,062 5,856
4 11,314 100,000 100,000 100,000 6,998 8,210 9,580 5,998 7,210 8,580
5 14,505 100,000 100,000 100,000 8,588 10,403 12,541 7,588 9,403 11,541
6 17,855 100,000 100,000 100,000 10,121 12,663 15,782 9,212 11,754 14,873
7 21,373 100,000 100,000 100,000 11,579 14,976 19,322 10,761 14,158 18,504
8 25,066 100,000 100,000 100,000 12,952 17,336 23,183 12,225 16,609 22,456
9 28,945 100,000 100,000 100,000 14,243 19,746 27,406 13,607 19,110 26,770
10 33,017 100,000 100,000 100,000 15,443 22,203 32,031 14,898 21,658 31,486
11 37,293 100,000 100,000 100,000 16,564 24,739 37,157 16,109 24,284 36,702
12 41,782 100,000 100,000 100,000 17,590 27,333 42,807 17,226 26,969 42,443
13 46,497 100,000 100,000 100,000 18,569 30,033 49,086 18,296 29,760 48,813
14 51,446 100,000 100,000 100,000 19,524 32,870 56,090 19,342 32,688 55,908
15 56,644 100,000 100,000 100,000 20,443 35,839 63,899 20,352 35,748 63,808
16 62,101 100,000 100,000 100,000 21,163 38,822 72,555 21,163 38,822 72,555
17 67,831 100,000 100,000 100,000 21,742 41,874 82,217 21,742 41,874 82,217
18 73,848 100,000 100,000 109,689 22,181 45,012 92,957 22,181 45,012 92,957
19 80,165 100,000 100,000 122,555 22,469 48,241 104,748 22,469 48,241 104,748
20 86,798 100,000 100,000 136,516 22,569 51,559 117,686 22,569 51,559 117,686
21 93,763 100,000 100,000 151,671 22,485 54,992 131,888 22,485 54,992 131,888
22 101,076 100,000 100,000 166,688 22,161 58,533 147,511 22,161 58,533 147,511
23 108,755 100,000 100,000 182,843 21,598 62,217 164,723 21,598 62,217 164,723
24 116,818 100,000 100,000 200,243 20,763 66,067 183,709 20,763 66,067 183,709
25 125,284 100,000 100,000 219,003 19,583 70,098 204,676 19,583 70,098 204,676
26 134,173 100,000 100,000 239,274 18,037 74,361 227,880 18,037 74,361 227,880
27 143,506 100,000 100,000 266,026 16,020 78,891 253,358 16,020 78,891 253,358
28 153,307 100,000 100,000 295,394 13,494 83,763 281,328 13,494 83,763 281,328
29 163,597 100,000 100,000 327,606 10,307 89,049 312,005 10,307 89,049 312,005
30 174,402 100,000 100,000 362,926 6,396 94,867 345,644 6,396 94,867 345,644
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
36
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ----------------------- -----------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------ ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,000 $100,000 $100,000 $ 676 $ 725 $ 775 $ 0 $ 25 $ 75
2 2,153 100,000 100,000 100,000 1,332 1,473 1,620 632 773 920
3 3,310 100,000 100,000 100,000 1,965 2,240 2,540 1,265 1,540 1,840
4 4,526 100,000 100,000 100,000 2,575 3,028 3,541 1,875 2,328 2,841
5 5,802 100,000 100,000 100,000 3,161 3,836 4,632 2,461 3,136 3,932
6 7,142 100,000 100,000 100,000 3,721 4,662 5,819 3,085 4,026 5,183
7 8,549 100,000 100,000 100,000 4,254 5,507 7,111 3,681 4,934 6,538
8 10,027 100,000 100,000 100,000 4,761 6,371 8,519 4,252 5,862 8,010
9 11,578 100,000 100,000 100,000 5,240 7,253 10,053 4,795 6,808 9,608
10 13,207 100,000 100,000 100,000 5,690 8,152 11,726 5,308 7,770 11,344
11 14,917 100,000 100,000 100,000 6,108 9,066 13,550 5,790 8,748 13,232
12 16,713 100,000 100,000 100,000 6,495 9,996 15,540 6,240 9,741 15,285
13 18,599 100,000 100,000 100,000 6,847 10,940 17,713 6,656 10,749 17,522
14 20,579 100,000 100,000 100,000 7,165 11,897 20,087 7,038 11,770 19,960
15 22,657 100,000 100,000 100,000 7,444 12,865 22,682 7,380 12,801 22,618
16 24,840 100,000 100,000 100,000 7,682 13,842 25,520 7,682 13,842 25,520
17 27,132 100,000 100,000 100,000 7,874 14,822 28,625 7,874 14,822 28,625
18 29,539 100,000 100,000 100,000 8,014 15,803 32,023 8,014 15,803 32,023
19 32,066 100,000 100,000 100,000 8,096 16,776 35,745 8,096 16,776 35,745
20 34,719 100,000 100,000 100,000 8,115 17,738 39,825 8,115 17,738 39,825
21 37,505 100,000 100,000 100,000 8,062 18,683 44,303 8,062 18,683 44,303
22 40,430 100,000 100,000 100,000 7,934 19,605 49,228 7,934 19,605 49,228
23 43,502 100,000 100,000 100,000 7,726 20,500 54,654 7,726 20,500 54,654
24 46,727 100,000 100,000 100,000 7,428 21,362 60,645 7,428 21,362 60,645
25 50,113 100,000 100,000 100,000 7,030 22,179 67,270 7,030 22,179 67,270
26 53,669 100,000 100,000 100,000 6,520 22,941 74,616 6,520 22,941 74,616
27 57,403 100,000 100,000 105,929 5,884 23,636 82,757 5,884 23,636 82,757
28 61,323 100,000 100,000 115,524 5,099 24,246 91,685 5,099 24,246 91,685
29 65,439 100,000 100,000 125,815 4,145 24,750 101,463 4,145 24,750 101,463
30 69,761 100,000 100,000 136,852 2,998 25,129 112,174 2,998 25,129 112,174
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
37
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $100,000 $100,000 $100,000 $ 1,769 $ 1,895 $ 2,021 $ 769 $ 895 $ 1,021
2 5,381 100,000 100,000 100,000 3,469 3,831 4,209 2,469 2,831 3,209
3 8,275 100,000 100,000 100,000 5,095 5,806 6,579 4,095 4,806 5,579
4 11,314 100,000 100,000 100,000 6,642 7,816 9,144 5,642 6,816 8,144
5 14,505 100,000 100,000 100,000 8,108 9,859 11,924 7,108 8,859 10,924
6 17,855 100,000 100,000 100,000 9,488 11,932 14,937 8,579 11,023 14,028
7 21,373 100,000 100,000 100,000 10,778 14,033 18,208 9,960 13,215 17,390
8 25,066 100,000 100,000 100,000 11,978 16,164 21,768 11,251 15,437 21,041
9 28,945 100,000 100,000 100,000 13,082 18,321 25,648 12,446 17,685 25,012
10 33,017 100,000 100,000 100,000 14,081 20,501 29,883 13,536 19,956 29,338
11 37,293 100,000 100,000 100,000 14,969 22,698 34,514 14,514 22,243 34,059
12 41,782 100,000 100,000 100,000 15,737 24,909 39,590 15,373 24,545 39,226
13 46,497 100,000 100,000 100,000 16,368 27,124 45,166 16,095 26,851 44,893
14 51,446 100,000 100,000 100,000 16,849 29,336 51,308 16,667 29,154 51,126
15 56,644 100,000 100,000 100,000 17,164 31,538 58,099 17,073 31,447 58,008
16 62,101 100,000 100,000 100,000 17,309 33,737 65,653 17,309 33,737 65,653
17 67,831 100,000 100,000 100,000 17,259 35,920 74,085 17,259 35,920 74,085
18 73,848 100,000 100,000 100,000 16,997 37,084 83,546 16,997 38,084 83,546
19 80,165 100,000 100,000 110,062 16,502 40,226 94,070 16,502 40,226 94,070
20 86,798 100,000 100,000 122,471 15,741 42,338 105,578 15,741 42,338 105,578
21 93,763 100,000 100,000 135,884 14,670 44,407 118,160 14,670 44,407 118,160
22 101,076 100,000 100,000 149,123 13,232 46,415 131,968 13,232 46,415 131,968
23 108,755 100,000 100,000 163,322 11,352 48,342 147,137 11,352 48,342 147,137
24 116,818 100,000 100,000 178,576 8,940 50,164 163,831 8,940 50,164 163,831
25 125,284 100,000 100,000 195,000 5,901 51,865 182,243 5,901 51,865 182,243
26 134,173 100,000 100,000 212,740 2,132 53,432 202,609 2,132 53,432 202,609
27 143,506 *** 100,000 236,139 *** 54,853 224,895 *** 54,853 224,895
28 153,307 *** 100,000 261,731 *** 56,115 249,267 *** 56,115 249,267
29 163,597 *** 100,000 289,702 *** 57,200 275,907 *** 57,200 275,907
30 174,402 *** 100,000 320,255 *** 58,073 305,005 *** 58,073 305,005
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
38
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ----------------------- -----------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------ ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,705 $100,755 $100,805 $ 705 $ 755 $ 805 $ 5 $ 55 $ 105
2 2,153 101,387 101,531 101,681 1,387 1,531 1,681 687 831 981
3 3,310 102,045 102,327 102,634 2,045 2,327 2,634 1,345 1,627 1,934
4 4,526 102,677 103,143 103,669 2,677 3,143 3,669 1,977 2,443 2,969
5 5,802 103,285 103,979 104,795 3,285 3,979 4,795 2,585 3,279 4,095
6 7,142 103,864 104,831 106,017 3,864 4,831 6,017 3,228 4,195 5,381
7 8,549 104,419 105,705 107,349 4,419 5,705 7,349 3,846 5,132 6,776
8 10,027 104,953 106,605 108,804 4,953 6,605 8,804 4,444 6,096 8,295
9 11,578 105,472 107,536 110,400 5,472 7,536 10,400 5,027 7,091 9,955
10 13,207 105,977 108,499 112,153 5,977 8,499 12,153 5,595 8,117 11,771
11 14,917 106,471 109,508 114,094 6,471 9,508 14,094 6,153 9,190 13,776
12 16,713 106,942 110,543 116,218 6,942 10,543 16,218 6,687 10,288 15,963
13 18,599 107,389 111,607 118,545 7,389 11,607 18,545 7,198 11,416 18,354
14 20,579 107,815 112,703 121,097 7,815 12,703 21,097 7,688 12,576 20,970
15 22,657 108,228 113,839 123,905 8,228 13,839 23,905 8,164 13,775 23,841
16 24,840 108,617 115,008 126,985 8,617 15,008 26,985 8,617 15,008 26,985
17 27,132 108,964 116,189 130,344 8,964 16,189 30,344 8,964 16,189 30,344
18 29,539 109,269 117,385 134,012 9,269 17,385 34,012 9,269 17,385 34,012
19 32,066 109,526 118,588 138,011 9,526 18,588 38,011 9,526 18,588 38,011
20 34,719 109,733 119,795 142,374 9,733 19,795 42,374 9,733 19,795 42,374
21 37,505 109,884 121,001 147,031 9,884 21,001 47,131 9,884 21,001 47,131
22 40,430 109,976 122,199 152,317 9,976 22,199 52,317 9,976 22,199 52,317
23 43,502 109,995 123,375 157,962 9,995 23,375 57,962 9,995 23,375 57,962
24 46,727 109,942 124,529 164,113 9,942 24,529 64,113 9,942 24,529 64,113
25 50,113 109,800 125,638 170,801 9,800 25,638 70,801 9,800 25,638 70,801
26 53,669 109,569 126,702 178,081 9,569 26,702 78,081 9,569 26,702 78,081
27 57,403 109,228 127,694 185,991 9,228 27,694 85,991 9,228 27,694 85,991
28 61,323 108,794 128,626 194,610 8,794 28,626 94,610 8,794 28,626 94,610
29 65,439 108,233 129,460 203,976 8,233 29,460 103,976 8,233 29,460 103,976
30 69,761 107,533 130,176 214,148 7,533 30,176 114,148 7,533 30,176 114,148
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
39
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $101,829 $101,956 $102,083 $ 1,829 $ 1,956 $ 2,083 $ 829 $ 956 $ 1,083
2 5,381 103,576 103,944 104,328 3,576 3,944 4,328 2,576 2,944 3,328
3 8,275 105,271 105,993 106,777 5,271 5,993 6,777 4,271 4,993 5,777
4 11,314 106,897 108,089 109,436 6,897 8,089 9,436 5,897 7,089 8,436
5 14,505 108,433 110,209 112,300 8,433 10,209 12,300 7,433 9,209 11,300
6 17,855 109,897 112,373 115,408 9,897 12,373 15,408 8,988 11,464 14,499
7 21,373 111,270 114,560 118,763 11,270 14,560 18,763 10,452 13,742 17,945
8 25,066 112,540 116,757 122,375 12,540 16,757 22,375 11,813 16,030 21,648
9 28,945 113,706 118,961 126,266 13,706 18,961 26,266 13,070 18,325 25,630
10 33,017 114,758 121,162 130,453 14,758 21,162 30,453 14,213 20,617 29,908
11 37,293 115,700 123,371 134,996 15,700 23,371 34,996 15,245 22,916 34,541
12 41,782 116,518 125,564 139,893 16,518 25,564 39,893 16,154 25,200 39,529
13 46,497 117,280 127,807 145,249 17,280 27,807 45,249 17,007 27,534 44,976
14 51,446 118,006 130,125 151,133 18,006 30,125 51,133 17,824 29,943 50,951
15 56,644 118,679 132,499 157,580 18,679 32,499 57,580 18,588 32,408 57,489
16 62,101 119,078 134,704 164,412 19,078 34,704 64,412 19,078 34,704 64,412
17 67,831 117,288 136,816 171,754 19,288 36,816 71,754 19,288 36,816 71,754
18 73,848 119,313 138,833 179,660 19,313 38,833 79,660 19,313 38,833 79,660
19 80,165 119,140 140,731 187,171 19,140 40,731 88,171 19,140 40,731 88,171
20 86,798 118,723 142,457 197,298 18,723 42,457 97,298 18,723 42,457 97,298
21 93,763 118,074 144,011 206,111 18,074 43,011 107,111 18,074 44,011 107,111
22 101,076 117,127 145,313 217,607 17,127 45,313 117,607 17,127 45,313 117,607
23 108,755 115,892 146,357 228,864 15,892 46,357 128,864 15,892 46,357 128,864
24 116,818 114,346 146,103 240,928 14,346 46,103 140,928 14,346 46,103 140,928
25 125,284 112,412 147,455 253,799 12,412 47,455 153,799 12,412 47,455 153,799
26 134,173 110,095 147,394 267,557 10,095 47,394 167,557 10,095 47,394 167,557
27 143,506 107,303 146,800 282,189 7,303 46,800 182,189 7,303 46,800 182,189
28 153,307 104,042 145,647 297,785 4,042 45,647 197,785 4,042 45,647 197,785
29 163,597 100,201 143,791 314,320 201 43,791 214,320 200 43,791 214,320
30 174,402 *** 141,210 331,900 *** 40,210 231,900 *** 41,210 231,900
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
40
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ---------------------- ----------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,675 $100,724 $100,773 $ 675 $ 724 $ 773 $ 0 $ 24 $ 73
2 2,153 101,328 101,468 101,615 1,328 1,468 1,615 628 768 915
3 3,310 101,957 102,231 102,529 1,957 2,231 2,529 1,257 1,531 1,829
4 4,526 102,561 103,012 103,522 2,561 3,012 3,522 1,861 2,312 2,822
5 5,802 103,140 103,810 104,600 3,140 3,810 4,600 2,440 3,110 3,900
6 7,142 103,691 104,624 105,769 3,691 4,624 5,769 3,055 3,988 5,133
7 8,549 104,214 105,453 107,038 4,214 5,453 7,038 3,641 4,880 6,465
8 10,027 104,708 106,296 108,414 4,708 6,296 8,414 4,199 5,787 7,905
9 11,578 105,172 107,153 109,908 5,172 7,153 9,908 4,727 6,708 9,463
10 13,207 105,604 108,021 111,528 5,604 8,021 11,528 5,222 7,639 11,146
11 14,917 106,003 108,898 113,284 6,003 8,898 13,284 5,685 8,580 12,966
12 16,713 106,366 109,783 115,189 6,366 9,783 15,189 6,111 9,528 14,934
13 18,599 106,692 110,673 117,254 6,692 10,673 17,254 6,501 10,482 17,063
14 20,579 106,980 111,566 119,493 6,980 11,566 19,493 6,853 11,439 19,366
15 22,657 107,227 112,459 121,920 7,227 12,459 21,920 7,163 12,395 21,856
16 24,840 107,428 113,347 124,549 7,428 13,347 24,549 7,428 13,347 24,549
17 27,132 107,579 114,223 127,395 7,579 14,223 27,395 7,579 14,223 27,395
18 29,539 107,673 115,079 130,470 7,673 15,079 30,470 7,673 15,079 30,470
19 32,066 107,705 115,907 133,791 7,705 15,907 33,791 7,705 15,907 33,791
20 34,719 107,667 116,699 137,375 7,667 16,699 37,375 7,667 16,699 37,275
21 37,505 107,553 117,443 141,239 7,553 17,443 41,239 7,553 17,443 41,239
22 40,430 107,358 118,133 145,404 7,358 18,133 45,404 7,358 18,133 45,404
23 43,502 107,078 118,759 149,897 7,078 18,759 49,897 7,078 18,759 49,897
24 46,727 106,705 119,309 154,738 6,705 19,309 54,738 6,705 19,309 54,738
25 50,113 106,228 119,767 159,951 6,228 19,767 59,951 6,228 19,767 59,951
26 53,669 105,637 120,117 165,560 5,637 20,117 65,560 5,637 20,117 65,560
27 57,403 104,919 120,338 171,588 4,919 20,338 71,588 4,919 20,338 71,588
28 61,323 104,066 120,416 178,069 4,066 20,416 78,069 4,066 20,416 78,069
29 65,439 103,050 120,312 185,013 3,050 20,312 85,013 3,050 20,312 85,013
30 69,761 101,853 119,996 192,446 1,853 19,996 92,446 1,853 19,996 92,446
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
41
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
Year 5% Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $101,758 $101,883 $102,009 $ 1,758 $ 1,883 $ 2,009 $ 758 $ 883 $ 1,009
2 5,381 103,437 103,796 104,170 3,437 3,796 4,170 2,437 2,796 3,170
3 8,275 105,030 105,731 106,494 5,030 5,731 6,494 4,030 4,731 5,494
4 11,314 106,532 107,683 108,986 6,532 7,683 8,986 5,532 6,683 7,986
5 14,505 107,936 109,644 111,657 7,936 9,644 11,657 6,936 8,644 10,657
6 17,855 109,237 111,606 114,517 9,237 11,606 14,517 8,328 10,697 13,608
7 21,373 110,430 113,563 117,577 10,430 13,563 17,577 9,612 12,745 16,759
8 25,066 111,512 115,508 120,851 11,512 15,508 20,851 10,785 14,781 20,124
9 28,945 112,475 117,432 124,352 12,475 17,432 24,352 11,839 16,796 23,716
10 33,017 113,309 119,320 128,088 13,309 19,320 28,088 12,764 18,775 27,543
11 37,293 113,004 121,158 132,071 14,004 21,158 32,071 13,549 20,703 31,616
12 41,782 114,547 122,929 136,309 14,547 22,929 36,309 14,183 22,565 35,945
13 46,497 114,932 124,620 140,817 14,932 24,620 40,817 14,659 24,347 40,544
14 51,446 115,130 126,195 145,591 15,130 26,195 45,591 14,948 26,013 45,409
15 56,644 115,124 127,628 150,633 15,124 27,628 50,633 15,003 27,537 50,542
16 62,101 114,898 128,892 155,952 14,898 28,892 55,952 14,898 28,829 55,952
17 67,831 114,438 129,962 161,553 14,438 29,962 61,553 14,438 29,962 61,553
18 73,848 113,729 130,811 167,448 13,729 30,811 67,448 13,729 30,811 67,448
19 80,165 112,754 131,406 173,642 12,754 31,406 73,642 12,754 31,406 73,642
20 86,798 111,488 131,705 180,133 11,488 31,705 80,133 11,488 31,705 80,133
21 93,763 109,892 131,653 186,905 9,892 31,653 86,905 9,892 31,653 86,905
22 101,076 107,923 131,182 193,933 7,923 31,182 93,933 7,923 31,182 93,933
23 108,755 105,523 130,208 201,175 5,523 30,208 101,175 5,523 30,208 101,175
24 116,818 102,637 128,645 208,585 2,637 28,645 108,585 2,637 28,645 108,585
25 125,284 *** 126,412 215,121 *** 26,412 116,121 *** 26,412 116,121
26 134,173 *** 123,434 223,749 *** 23,434 123,749 *** 23,434 123,749
27 143,506 *** 119,640 230,437 *** 19,640 131,437 *** 19,640 131,437
28 153,307 *** 114,961 238,155 *** 14,961 139,155 *** 14,961 139,155
29 163,597 *** 109,318 246,863 *** 9,318 146,863 *** 9,318 146,863
30 174,402 *** 102,605 253,493 *** 2,605 154,493 *** 2,605 154,493
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown and
will depend on a number of factors, including the allocations made by a policy
owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash surrender value for a policy would
be different from those shown if the actual gross annual rates of return
averaged 0%, 6% or 12% over a period of years, but fluctuated above or below
those averages for individual policy years. They would also be different if any
policy loans or partial surrenders were made. No representations can be made by
us, the Variable Account or the portfolios that these hypothetical rates of
return can be achieved for any one year or sustained over a period of time.
42
<PAGE>
Appendix C:
Directors and Officers of United Investors
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are managed by a board of directors. The following table sets forth the
name and principal occupations during the past five years of each of our
directors and senior officers. Unless otherwise noted, the address for each
person is United Investors Life Insurance Company, 2001 Third Avenue South,
Birmingham, Alabama 35233.
<TABLE>
<CAPTION>
Name and Position with Principal Occupation
United Investors During the Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United Investors since November
Director, Vice President 1992.
and Chief Actuary
- -----------------------------------------------------------------------------------------------
Tony G. Brill* Executive Vice President--Administration of United Investors since
Director and Executive September 1998. Senior Vice President of United Investors, March
Vice President-- 1998--September 1998. Senior Vice President of Torchmark
Administration Corporation since January 1997. Managing Partner of KPMG Peat
Marwick LLP, Birmingham, Alabama Office, 1984--January 1997.
- -----------------------------------------------------------------------------------------------
Terry W. Davis Vice President--Administration of Liberty National Life Insurance
Director and Vice Company and United Investors since December 1996. Second Vice
President-- President--Administration of Liberty National Life Insurance
Administration Company since March 1988.
- -----------------------------------------------------------------------------------------------
C.B. Hudson* Chairman of United Investors and Torchmark Corporation since March
Chairman of the Board 1998. Chairman of Insurance Operations of Torchmark Corporation,
and Chief Executive January 1993--March 1998. Chairman of Liberty National Life
Officer Insurance Company, United American Insurance Company, and Globe
Life Insurance Company since 1991.
- -----------------------------------------------------------------------------------------------
Larry M. Hutchison* Vice President and General Counsel of Torchmark since February
Director 1997. Vice President and General Counsel of United American
Insurance Company since 1992.
- -----------------------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since January 1984.
Vice President and
Treasurer
- -----------------------------------------------------------------------------------------------
John H. Livingston Secretary and Counsel of United Investors since May 1995. Secretary
Director, Secretary and Associate Counsel of United Investors, December 1994--May 1995.
and Counsel Associate Counsel of United Investors, July 1990--December 1994.
- -----------------------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty National Life Insurance
Vice President and Company since January 1985.
Controller
- -----------------------------------------------------------------------------------------------
Mark S. McAndrew* Senior Vice President--Marketing of United Investors since March
Senior Vice President-- 1998. Director of Torchmark Corporation since April 1998. President
Marketing of United American Insurance Company and Globe Life and Accident
Insurance Company since 1991.
- -----------------------------------------------------------------------------------------------
Carol A. McCoy Secretary of Torchmark Corporation since February 1994. Associate
Director and Assistant Counsel of Torchmark Corporation since January 1985.
Secretary
- -----------------------------------------------------------------------------------------------
Anthony L. McWhorter President of United Investors since September 1998. President of
Director and President Liberty National Life Insurance Company since December 1994.
Executive Vice President and Chief Actuary of Liberty National,
November 1993--December 1994. Senior Vice President & Chief Actuary
of Liberty National, September 1991--November 1993.
- -----------------------------------------------------------------------------------------------
Ross W. Stagner Vice President of United Investors since January 1992.
Director and Vice
President
</TABLE>
*Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75070.
43
<PAGE>
Appendix D:
Glossary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Administrative Office 5525 LBJ Freeway, Suite 500, P.O. Box 219065, Dallas, Texas 75221-
9065, (800) 451-6923.
- -----------------------------------------------------------------------------------------------
Attained Age The age of the insured on his or her last birthday at the beginning
of each policy year.
- -----------------------------------------------------------------------------------------------
Business Day Each day that the New York Stock Exchange is open for trading.
- -----------------------------------------------------------------------------------------------
Cash Surrender Value Policy value less any applicable surrender charges.
- -----------------------------------------------------------------------------------------------
Death Benefit The amount of insurance payable to the beneficiary on the death of
the insured.
- -----------------------------------------------------------------------------------------------
Death Benefit Option One of two options under the policy that is used to determine the
amount of the death benefit.
- -----------------------------------------------------------------------------------------------
Fixed Account A part of our general account. The general account consists of all
of our assets other than those in any separate account.
- -----------------------------------------------------------------------------------------------
Fixed Account Value The policy value in the fixed account.
- -----------------------------------------------------------------------------------------------
Loan Balance The sum of all outstanding loans including principal and interest.
- -----------------------------------------------------------------------------------------------
Maturity Date Policy anniversary on or next following the insured's 100th
birthday.
- -----------------------------------------------------------------------------------------------
Minimum Monthly Premium For any policy month during the death benefit guarantee period, the
minimum amount of premium required to keep the death benefit
guarantee in effect.
- -----------------------------------------------------------------------------------------------
Monthly Anniversary The same day each month as the policy's effective date. If the
monthly anniversary falls on a date other than a business day, the
next following business day will be deemed the monthly anniversary.
- -----------------------------------------------------------------------------------------------
Net Cash Surrender Value Cash surrender value less any loan balance.
- -----------------------------------------------------------------------------------------------
Net Premium The premium received less the premium expense charge.
- -----------------------------------------------------------------------------------------------
Partial Surrender A request to withdraw a portion of the net cash surrender value. A
partial surrender will be subject to a surrender charge.
- -----------------------------------------------------------------------------------------------
Policy Anniversary The same day and month as the policy's effective date each year
that the policy remains in force. If the policy anniversary falls
on a date other than a business day, the next following business
day will be deemed the policy anniversary.
- -----------------------------------------------------------------------------------------------
Policy's Effective Date The date from which policy anniversaries and policy years are
determined. Your policy's effective date is shown in your policy.
- -----------------------------------------------------------------------------------------------
Policy Loan A request to borrow a portion of the net cash surrender value.
- -----------------------------------------------------------------------------------------------
Policy Month The first policy month starts on the policy's effective date.
Subsequent policy months start on each monthly anniversary.
- -----------------------------------------------------------------------------------------------
Policy Value The sum of the variable account value and the fixed account value.
- -----------------------------------------------------------------------------------------------
Variable Account Value The sum of the values of the variable investment divisions under
your policy.
- -----------------------------------------------------------------------------------------------
We, Us, or United United Investors Life Insurance Company.
Investors
- -----------------------------------------------------------------------------------------------
You and Your The policy owner.
</TABLE>
44
<PAGE>
Appendix E:
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1998 and 1997 and the related statements
of operations, comprehensive income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 29, 1999
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1998--$612,586; 1997--$612,600)................. $ 643,151 $ 635,643
Preferred stock of affiliate (cost: 1998--$188,212:
1997--$0).............................................. 188,212 0
Policy Loans............................................ 18,009 15,817
Other long term investments............................. 0 22,488
Short term investments.................................. 12,680 13,423
---------- ----------
Total investments.................................... 862,052 687,371
Cash..................................................... 11,426 5,288
Accrued investment income (includes amounts from
affiliates: 1998--$582; 1997--$473)..................... 11,747 11,270
Receivables.............................................. 3,113 2,826
Due from affiliate (includes funds withheld on
reinsurance: 1998--$229,194; 1997--$190,235)............ 278,458 225,235
Deferred acquisition cost................................ 183,033 176,897
Value of business purchased.............................. 30,600 33,754
Goodwill................................................. 29,465 6,771
Property and equipment................................... 96 141
Other assets............................................. 1,786 1,149
Separate account assets.................................. 2,425,262 1,876,439
---------- ----------
Total assets......................................... $3,837,038 $3,027,141
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1998--$241,357; 1997--$210,276)............ $ 776,461 $ 736,975
Unearned and advance premiums........................... 2,822 2,975
Other policy benefits................................... 6,973 8,713
---------- ----------
Total policy liabilities............................. 786,256 748,663
Accrued income taxes.................................... 55,498 58,270
Other liabilities....................................... 2,174 2,825
Due to affiliates....................................... 8,268 9,374
Separate account liabilities............................ 2,425,262 1,876,439
---------- ----------
Total liabilities.................................... 3,277,458 2,695,571
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares........................ 3,000 3,000
Additional paid in capital.............................. 350,388 138,469
Unrealized investment gains, net of applicable taxes.... 15,654 14,700
Retained earnings....................................... 190,538 175,401
---------- ----------
Total shareholder's equity........................... 559,580 331,570
---------- ----------
Total liabilities and shareholder's equity........... $3,837,038 $3,027,141
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 69,987 $ 68,723 $ 65,114
Policy charges and fees........................... 45,113 36,582 29,403
Net investment income (includes amounts from af-
filiates 1998--$13,082;
1997--$2,863; 1996--$2,847)...................... 61,373 51,514 51,128
Realized investment gains (losses)................ 9,401 (5,365) 925
Other income from affiliates...................... 13,665 11,876 0
-------- -------- --------
Total revenue................................... 199,539 163,330 146,570
Benefits and expenses:
Policy benefits:
Individual life.................................. 63,689 57,954 47,355
Annuity.......................................... 13,633 15,165 15,807
-------- -------- --------
Total policy benefits........................... 77,322 73,119 63,162
Amortization of deferred acquisition costs........ 27,874 24,898 19,850
Commissions and premium taxes (includes amounts to
affiliates:
1998--$1,013; 1997--$4,928; 1996--$4,723)........ 5,580 6,251 5,248
Other operating expenses (includes amounts to af-
filiates: 1998--$3,252;
1997--$3,217; 1996--$2,181)...................... 6,579 5,470 3,966
-------- -------- --------
Total benefits and expenses..................... 117,355 109,738 92,226
Net operating income before income taxes........... 82,184 53,592 54,344
Income taxes....................................... 25,567 18,843 19,078
-------- -------- --------
Net income...................................... $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Net income......................................... $56,617 $34,749 $ 35,266
Other comprehensive income (loss):
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains arising during period.. 7,021 13,362 (21,413)
Less: reclassification adjustment for (gains)
losses
on securities included in net income .......... (1) 5,235 (924)
Less: reclassification adjustment for
amortization of
(discount) and premium......................... 502 744 570
------- ------- --------
7,522 19,341 (21,767)
Unrealized gains (losses) on other investments.. (6,330) 1,798 861
Unrealized gains (losses) on deferred
acquisition costs............................. 276 (5,387) 8,857
------- ------- --------
Total unrealized gains (losses) ................ 1,468 15,752 (12,049)
Applicable tax.................................. (514) (5,512) 4,217
------- ------- --------
Other comprehensive income (loss).................. 954 10,240 (7,832)
Comprehensive income............................ $57,571 $44,989 $ 27,434
======= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-in Gains Retained Shareholders'
Stock Capital (Losses) Earnings Equity
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1996
Balance at January 1,
1996.................... $3,000 $137,950 $12,292 $159,886 $313,128
Comprehensive income..... (7,832) 35,266 27,434
Dividends................ (28,500) (28,500)
------ -------- ------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
Year Ended at December
31, 1997
Comprehensive income..... 10,240 34,749 44,989
Dividends................ (26,000) (26,000)
Exercise of stock op-
tions................... 519 519
------ -------- ------- -------- --------
Balance at December 31,
1997................... 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income..... 954 56,617 57,571
Dividends................ (33,500) (33,500)
Impact from reorganiza-
tion of Waddell & Reed.. -- 211,851 (7,980) 203,871
Exercise of stock op-
tions................... 68 68
------ -------- ------- -------- --------
Balance at December 31,
1998................... $3,000 $350,388 $15,654 $190,538 $559,580
====== ======== ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 56,617 $ 34,749 $ 35,266
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 13,871 17,878 20,692
Increase (decrease) in other policy liabili-
ties....................................... (1,892) 749 2,154
Deferral of policy acquisition costs........ (42,857) (33,485) (33,744)
Value of business acquired.................. 0 (10,000) 0
Amortization of deferred acquisition costs.. 27,874 24,898 19,850
Change in accrued income taxes.............. 1,079 10,212 (3,033)
Depreciation................................ 39 42 44
Realized (gains) losses on sale of invest-
ments and properties....................... (9,401) 5,365 (925)
Other accruals and adjustments.............. (3,240) 1,817 (997)
-------- -------- --------
Cash provided from operations................. 42,090 52,225 39,307
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 46,039 113,035 15,246
Fixed maturities available for sale-matured,
called and repaid........................... 76,583 66,469 44,523
Other long-term investments.................. 25,596 2,199 482
-------- -------- --------
Total investments sold or matured.......... 148,218 181,703 60,251
Acquisition of investments:
Fixed maturities available for sale.......... (123,111) (176,905) (68,214)
Net increase in policy loans................. (2,192) (1,485) (2,033)
Other long-term investments.................. (36) (1,517) (1,183)
-------- -------- --------
Total acquisition of investments........... (125,339) (179,907) (71,430)
Net (increase) decrease in short-term
investments.................................. 747 (11,589) 2,389
Funds loaned to affiliates.................... (13,026) (24,080) (3,500)
Funds repaid from affiliates.................. 2,400 24,080 3,500
Funds borrowed from affiliates................ 14,800 0 0
Funds repaid to affiliates.................... (14,800) 0 0
Disposition of properties..................... 5 0 34
Additions of properties....................... (37) (27) (117)
-------- -------- --------
Cash provided from (used for) investment
activities................................... 12,968 (9,820) (8,873)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (33,500) (27,000) (27,500)
Net receipts from deposit product opera-
tions...................................... (15,420) (12,521) (6,572)
-------- -------- --------
Cash used for financing activities............ (48,920) (39,521) (34,072)
Increase (decrease) in cash................... 6,138 2,884 (3,638)
Cash at beginning of year..................... 5,288 2,404 6,042
-------- -------- --------
Cash at end of year........................... $ 11,426 $ 5,288 $ 2,404
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies
Organization: United Investors Life Insurance Company ("UILIC") was a wholly
owned subsidiary of Waddell & Reed Financial, Inc. ("WDR") (formerly known as
United Investors Management Company), a subsidiary of Torchmark Corporation. On
March 3, 1998, to facilitate the initial public offering ("IPO") by Torchmark
Corporation ("TMK") of 36% of the common stock of WDR, several transactions
were completed to reorganize the assets held by WDR. The following transactions
directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers throughout
the United States. The Company is subject to regulation by the insurance
department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") an
indirectly wholly-owned subsidiary of TMK, is owned by Liberty National Life
Insurance Company (81.18%) and Torchmark Corporation (18.82%). The financial
statements have been prepared on the basis of generally accepted accounting
principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Investments in equity securities, which
include common and nonredeemable preferred stocks, are reported at fair value
with unrealized gains and losses, net of deferred taxes, reflected directly in
shareholder's equity. Policy loans are carried at unpaid principal balances.
Short-term investments include investments in certificates of deposit and other
interest-bearing time deposits with original maturities within three months.
Other long-term investments consist of investments in mutual funds which are
carried at fair value. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1998, 1997 and 1996 included approximately
$37,000, $37,800, and $37,600, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business through
the purchase of other companies and blocks of insurance business are also
deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
from that previously assumed, the estimates are revised. Deferred acquisition
costs are adjusted to reflect the amounts associated with unrealized investment
gains and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded an additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five years, which is the period United Investors Management Company had
remaining out of the original forty year estimated benefit period.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, a Statement of Comprehensive
Income is included as an integral part of the financial statements.
Year 2000 Compliance: The new millennium poses a significant concern to all
businesses which use computer systems or electronic data in their operations.
The concern arises because these organizations have computer systems and
programs that cannot always identify a proper date. For many years, programs
were written using a two digit code to represent a year. At the beginning of
the year 2000, more digits are needed to accurately determine the date in these
programs. Without addressing this issue, many computer programs could fail or
produce erroneous results. Additionally, companies which are electronically
engaged with other businesses or which rely on other businesses for services
are exposed to risk of failure by the electronic devices and computer systems
of those other entities to the extent they are not Year 2000 compliant. The
potential of failure of these systems creates considerable uncertainty and
could potentially adversely affect the ongoing operations and stability of a
business.
United Investors relies on computer systems which are supported and
maintained by Torchmark, its ultimate parent, and its various affiliates.
Torchmark is exposed to these risks should its computer systems fail
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
due to date-related problems. Torchmark is also reliant on a number of third
party businesses and governmental agencies with which it either interacts
electronically or depends upon for services in the conduct of its business.
These institutions include but are not limited to banks, financial
institutions, telecommunication companies, utilities, mail delivery
organizations, and a variety of governmental agencies. Should Torchmark's
computer systems or the systems of its third-party business partners not be
compliant the Company and Torchmark may be exposed to considerable risks,
including business interruption, loss of revenue, increased expense, loss of
policyholders, and litigation.
To reduce its business risk to an acceptable level, Torchmark has
established a project plan to insure that the company's business-critical
computer systems will be Year 2000 compliant. This plan also addresses third-
party compliance issues. Under the direction of executive management,
objectives and timetables have been set forth to achieve compliance in each
geographic location where Torchmark operates. Progress toward achieving those
objectives is constantly monitored. Torchmark currently expects the entire
project, including all Year 2000 testing activities, to be completed during
1999.
As of December 31, 1998, Torchmark remains on schedule to meet all of its
Year 2000 compliance requirements. All known required software changes have
been completed, and the related testing is in process with plans for completion
in 1999. With regard to third party concerns, Torchmark has in process the
following procedures:
1) Torchmark is confirming, with its software vendors, the Year 2000
readiness of its purchased software packages because Torchmark has purchased
software packages on all of its computer platforms;
2) Torchmark is verifying the Year 2000 compliance status of its financial
business partners computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3) All of Torchmark's electronic operational systems (telephones, security,
utility, environmental) are being evaluated for Year 2000 compliance.
As an example of Torchmark's interface testing with selected third parties,
Torchmark is utilizing electronic data from selected third parties in
processing Medicare Supplement benefit data using Year 2000 test data.
Torchmark is also arranging similar testing with a selected number of banks.
While Torchmark is making every effort to verify the compliance of third
parties, no assurances as to the compliance of their computer systems can be
given.
Torchmark has used primarily its own employees to complete its Year 2000
project. Other than completion of software testing, all significant Year 2000
project milestones for internal computer systems have been completed.
Confirmation of third party compliance and electronic data interface testing
with third parties is continuing with completion expected during 1999.
Torchmark has spent $5 million on its Year 2000 project activities to date,
including internal programming costs, outside contractors, and replacement
costs. These costs have been expensed as incurred. Total project cost is
expected to be approximately $6 million.
Year 2000 contingency plans are being developed for critical risk areas.
Management throughout the organization has established and documented a
contingency plan for Torchmark's most critical systems and interfaces with
business partners within each individual's responsibility. Such contingency
plans include possible manual operation efforts, staff adjustments, outside
services, and alternative procedures. These contingency plans will be
maintained well into 2000.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$47,294 $34,537 $26,640 $169,757 $156,676
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 47,294 $ 34,537 $ 26,640
Deferral of acquisition costs.................. 42,857 33,485 33,744
Amortization of acquisition costs.............. (27,874) (24,898) (19,850)
Differences in policy liabilities.............. 1,417 (2,113) (4,361)
Deferred income taxes.......................... (6,422) (6,053) (773)
Other.......................................... (655) (209) (134)
-------- -------- --------
GAAP net income................................ $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 169,757 $ 156,676
Differences in policy liabilities................ 9,208 9,540
Deferred acquisition cost and value of insurance
purchased....................................... 213,633 210,651
Deferred income taxes............................ (59,575) (52,639)
Asset valuation reserve.......................... 4,781 9,513
Nonadmitted assets............................... 3,348 1,850
Fair value adjustment on fixed maturities
available for sale.............................. 30,565 23,043
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 0
Goodwill......................................... 29,465 6,771
Due and deferred premiums........................ (30,317) (30,334)
Other............................................ 503 (3,501)
----------- -----------
GAAP shareholders' equity........................ $559,580 $331,570
=========== ===========
</TABLE>
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify companies
that require regulatory attention and is not to be used to rate or rank
companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Fixed maturities.................................. $45,889 $46,000 $ 46,366
Policy loans...................................... 1,186 1,107 1,001
Other long-term investments....................... 84 1,614 1,211
Short-term investments............................ 743 436 287
Other income...................................... 954 0 0
Interest and dividends from affiliates............ 13,082 2,863 2,847
------- ------- --------
61,938 52,020 51,712
Less investment expense........................... (565) (506) (584)
------- ------- --------
Net investment income............................. $61,373 $51,514 $ 51,128
======= ======= ========
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ 1 $(5,235) $ 925
Mutual funds.................................... 9,400 (130) 0
------- ------- --------
$ 9,401 $(5,365) $ 925
======= ======= ========
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... 7,522 19,340 (21,767)
Net change in unrealized investments gains
(losses) on short-term investments before tax.... (2) 0 0
Other (includes $(5,946) related to sale of mutual
fund shares in 1998)............................. (6,328) 1,799 861
Adjustment for deferred acquisition cost.......... 276 (5,387) 8,857
Applicable tax.................................... (514) (5,512) 4,217
------- ------- --------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities securities
available for sale............................... $ 954 $10,240 $ (7,832)
======= ======= ========
</TABLE>
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A summary of fixed maturities available for sale by amortized cost and
estimated fair value at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1998: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- ------- -------- --------
Total fixed maturities.. $612,586 $32,914 $(2,349) $643,151 $643,151
======== ======= ======= ======== ========
<CAPTION>
1997:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 22,035 $ 857 $ 0 $ 22,892 $ 22,892
GNMA's.................. 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed
securities............. 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions........... 28,603 517 0 29,120 29,120
Foreign governments..... 3,298 135 0 3,433 3,433
Public utilities........ 37,189 1,504 (39) 38,654 38,654
Industrial and
miscellaneous.......... 352,821 12,986 (267) 365,540 365,540
-------- ------- ------- -------- --------
Total fixed maturities.. $612,600 $23,498 $ (455) $635,643 $635,643
======== ======= ======= ======== ========
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A schedule of fixed maturities by contractual maturity at December 31, 1998
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 13,218 $ 13,359
Due after one year through five years................... 115,995 120,078
Due after five years through ten years.................. 202,843 213,213
Due after ten years..................................... 153,602 164,940
-------- --------
485,658 511,590
Mortgage- and asset-backed securities.................... 126,928 131,561
-------- --------
$612,586 $643,151
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $46,039 in
1998, $113,035 in 1997, and $15,246 in 1996. Gross gains realized on these
sales were $928 in 1998, $112 in 1997, and $749 in 1996. Gross losses on these
sales were $927 in 1998, $5,716 in 1997, and $0 in 1996.
Note 4--Deferred Acquisition Costs
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
Additions:
Deferred during peri-
od:
Commissions........... 36,328 0 27,664 0 28,492 0
Other expenses........ 6,529 0 5,821 0 5,252 0
-------- ------- -------- ------- -------- -------
Total deferred....... 42,857 0 33,485 0 33,744 0
Value of insurance
purchased............ 0 0 0 21,305 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 276 0 0 0 8,857 0
-------- ------- -------- ------- -------- -------
Total additions...... 43,133 0 33,485 21,305 42,601 0
Deductions:
Amortized during peri-
od................... (24,720) (3,154) (21,019) (3,711) (16,894) (2,519)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (5,387) 0 0 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 (168) 0 (437) 0
Adjustment to deferred
commissions due to
reorganization....... (12,277) 0 0 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (36,997) (3,154) (26,574) (3,711) (17,331) (2,519)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
======== ======= ======== ======= ======== =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $755, $938, and $1,100 for the years
ended December 31, 1998, 1997 and 1996, respectively. The average interest
accrual rates used were 6.15%, 6.29% and 6.44%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1998 to be amortized during each of the next five years is: 1999, $2,452;
2000, $2,137; 2001, $1,876; 2002, $1,659; 2003, $1,479.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
Note 5--Property and Equipment
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1998 1997
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 227 $ 178 $ 216 $ 161
Transportation equipment............... 72 36 132 55
Furniture and office equipment ........ 928 917 922 913
------ ------ ------ ------
Total................................ $1,227 $1,131 $1,270 $1,129
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $39,
$42 and $44 in each of the years 1998, 1997, and 1996, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1998 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1998 3.00% level to 6.00% level 12%
1986-1992 7.00% graded to 6.00% 22%
1962-1985 8.50% graded to 6.00% 4%
1981-1985 8.50% graded to 7.00% 4%
1984-1998 Interest Sensitive 58%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $25,567 $18,843 $19,078
Shareholders' equity:
Unrealized gains (losses)....................... 514 5,512 (4,217)
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (68) (519) 0
Tax benefit received on deferred commission
credit due to reorganization................... (4,297) 0 0
Other........................................... 300 1 (152)
------- ------- -------
$22,016 $23,837 $14,709
======= ======= =======
</TABLE>
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $19,145 $12,790 $18,305
Deferred income tax expense........................ 6,422 6,053 773
------- ------- -------
$25,567 $18,843 $19,078
======= ======= =======
</TABLE>
In 1998, 1997, and 1996, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1998,
1997 and 1996 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 % 1997 % 1996 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,764 35% $18,757 35% $19,020 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (3,532) (4) (18) 0 (38) 0
Purchase accounting differences.... 331 0 99 0 99 0
Other.............................. 4 0 5 0 (3) 0
------- --- ------- --- ------- ---
Income taxes........................ $25,567 31% $18,843 35% $19,078 35%
======= === ======= === ======= ===
</TABLE>
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 0 $ 4,777
Present value of future policy surrender charges... 20,153 13,925
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 132 203
----------- -----------
Total gross deferred tax assets.................... 20,285 18,905
Deferred tax liability:
Future policy benefits and unearned and advance
premiums.......................................... 2,022 0
Deferred acquisition costs......................... 61,881 62,863
Unrealized investment gains........................ 8,428 7,914
Other.............................................. 7,529 767
----------- -----------
Total gross deferred tax liabilities............... 79,860 71,544
----------- -----------
Net deferred tax liability......................... $ 59,575 $ 52,639
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1998.................................................. $42 $114
1997.................................................. 44 118
1996.................................................. 41 115
</TABLE>
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees contributions. The plans are funded by the
employee contributions and a United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $55
thousand and $55 thousand at December 31, 1998 and 1997, respectively. The
total unfunded plan liability recorded at December 31, 1998 was $459. The plans
covering the majority of employees are organized as trust funds whose assets
consist primarily of investments in marketable long-term fixed maturities and
equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1998 and 1997,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 679 $ 638 $ 638
Interest cost on projected benefit obligation... 1,657 1,575 1,478
Actual return on assets......................... (3,118) (2,335) (1,940)
Net amortization and deferral................... 1,942 1,351 1,032
------- ------- -------
Total net periodic cost........................ 1,160 1,229 1,208
Periodic cost allocated to other participating
employers..................................... 1,046 1,111 1,093
------- ------- -------
UILIC's net periodic cost....................... $ 114 $ 118 $ 115
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors's and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $21,841 $19,706
Service cost............................................. 679 638
Interest cost............................................ 1,657 1,575
Actuarial gain (loss).................................... 1,061 775
Benefits paid............................................ (2,008) (853)
------- -------
Obligation at the end of year............................ 23,230 21,841
Changes in plan assets:
Fair value at the beginning of year...................... 16,054 13,811
Return on assets......................................... 3,118 2,335
Contributions............................................ 976 761
Benefits paid............................................ (2,008) (853)
------- -------
Fair value at the end of year............................ 18,140 16,054
------- -------
Funded status at year end............................ (5,090) (5,787)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (775) 12
Unrecognized prior service cost.......................... 1,044 1,137
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(4,821) $(4,638)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $ (459) $ (459)
Accrued benefit liability................................ (4,707) (5,415)
Intangible asset......................................... 345 1,236
------- -------
Net amount recognized at year end....................... (4,821) (4,638)
Net amount recognized allocated to other participating
employers.............................................. (4,747) (4,564)
------- -------
UILIC's net amount recognized at year end................ $ (74) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations was 7.0% in 1998 and 7.5% in 1997. The rate of
assumed compensation increase was 4.0% in 1998 and 4.5% in 1997 while the
expected long-term rate of return on plan assets was 9.25% in 1998 and 9.25% in
1997.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 112 $ 86 $ 76
Interest on accumulated postretirement. benefit
obligation..................................... 377 357 403
Actual return on assets......................... 0 0 0
Net amortization and deferral................... (251) (374) (242)
------- ------- -------
Total net periodic postretirement cost......... 238 69 237
Periodic cost allocated to other participating
employers..................................... 233 68 232
------- ------- -------
UILIC's net periodic postretirement cost........ $ 5 $ 1 $ 5
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 4,775 $ 5,010
Service cost................................. 112 86
Interest cost................................ 377 357
Actuarial gain (loss)........................ 559 0
Benefits paid................................ (561) (678)
------------- -------------
Obligation at the end of year................ 5,262 4,775
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 561 678
Benefits paid................................ (561) (678)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (5,262) ( 4,775)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (553) (1,157)
Unrecognized prior service cost.............. (357) (563)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (6,172) (6,495)
Net amount recognized allocated to other
participating employers.................... (6,070) (6,386)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (102) $ (109)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, a 7.0% to 8.0% annual rate of increase in per
capita cost of covered healthcare benefits was assumed for 1998. These rates
grade to ranges of 4.5% to 5.5% by the year 2007. The health care cost trend
rate assumption has a significant effect on the amounts reported, as
illustrated in the following table which presents the effect of a one-
percentage-point increase and decrease on the service and interest cost
components and the benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 35 $ (31)
Benefit obligation......................................... 326 (300)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% in 1998 and 7.50% in 1997.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,840 in 1998, $1,852 in 1997 and $1,797 in 1996.
Torchmark performed certain administrative services for United Investors for
which it was charged $612 in 1998, $468 in 1997 and $384 in 1996.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.110%, and in October 1998, United Investors loaned Torchmark an
additional $10,626 at an interest rate of 7.875%. Interest income related to
the Torchmark loans totaling $2,989, $2,838 and $2,838 for 1998, 1997 and 1996,
respectively, is included in the accompanying financial statements. In January
1996, United Investors loaned Liberty National $3,500 at an interest rate of
5.75%. This loan was paid in full in February 1996. Interest income related to
this loan totaling $9 at December 31, 1996 is included in the accompanying
financial statements. In 1997, United Investors loaned Torchmark, Liberty
National and United American $8,060, $10,520 and $5,500 respectively at an
interest rate of 5.5% all of which were repaid prior to December 31, 1997.
Interest income related to these loans totaling $1, $2 and $22 respectively is
included in the accompanying financial statements. In 1998, United Investors
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid prior to December 31, 1998.
Interest income related to these loans totaling $2 and $2 respectively is
included in the accompanying financial statements. During 1998, TMK loaned
United Investors $14,800 in a series of six separate loans at an interest rate
of 5.5% all of which were repaid prior to December 31, 1998. Interest expenses
related to these loans totaling $34 is included in the accompanying financial
statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on 100% funds withheld coinsurance basis. In
connection with this transaction, United Investors paid a ceding fee totaling
$21,305, $10,000 of which was paid in cash, and recorded a due from affiliates
totaling $189,016 at the end of 1997. The funds withheld totaled $229,194 and
$190,235 at December, 1998 and 1997, respectively. Interest income totaled
$13,665 and $11,876 in 1998 and 1997, respectively, and is included in other
income. The reserve for annuity balances assumed in connection with this
business totaled $241,357 and $210,276 as of December 31, 1998 and 1997,
respectively. United Investors reimbursed United American for administrative
expenses in the amount of $800 in 1998 and $897 in 1997.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $10,093 is included in the
accompanying financial statements.
Note 10--Commitments and Contingencies
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1998 and 3% of premium income
for 1998. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholder's equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1998 in compliance with all regulations were $392,823.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentration of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The investment consists of
investment grade corporate bonds (55.7%), securities of the U.S. government or
U.S. government-backed securities (18.2%), non investment grade securities
(12.3%), municipal governments (4.4%), non government guaranteed mortgage
backed securities (3.3%), and policy loans (2.6%) which are secured by the
underlying policy value. The balance of the portfolio is invested in short-term
investments (3.5%).
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt investments
are made in a wide range of industries. At December 31, 1998, 1% or more of the
portfolio was invested in the following industries: financial services (19.8%);
chemicals and allied products (6.2%); manufacturing (5.8%); consumer goods
(5.5%); public utilities (4.9%); media and communications (4.6%);
transportation (4.2%); services (4.1%); retailing (3.9%); machinery and
equipment (3.3%); petroleum (2.7%); asset-backed securities (1.2%); paper and
allied products (1.1%). At the end of 1998, 12.3% of the carrying value of
fixed securities was rated below investment grade. Par value of these
investments was $84.249, amortized cost was $83.731, and market value was
$84.588. While these investments could be subject to additional credit risk,
such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 11--Supplemental Disclosures for Cash Flow Statement
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Due from affiliates........................... $229,194 $189,016 $ 0
Value of business purchased................... 0 11,305 0
Future policy benefits........................ 241,357 200,321 0
Impact from reorganization of
Waddell & Reed .............................. 203,871 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Taxes paid.................................... $26,054 $8,631 $22,111
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors's insurance segments. The tables below present segment premium
revenue by each of United Investors's marketing groups.
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $ $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $ $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1996
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,795 10.4% $ $ 6,795 10.4%
Waddell & Reed...................... 58,319 89.6% 58,319 89.6%
------- ----- ---- ----- ------- -----
$65,114 100.0% $ 0.0% $65,114 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors's business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors's revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1998
-----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ $ $ $69,987
Policy Charges and
fees.................. 12,048 33,065 45,113
Net Investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- --- -------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy Benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- --- -------
Total Expenses........ 62,044 24,510 24,222 110,776
-------- -------- -------- ------- --- -------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
Expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- --- -------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ 0 72,783
======== ======== ======== ======= ===
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 9,401
-------
Pretax income.......................................................... $82,184
=======
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ $ $ $ 68,723
Policy Charges and
fees.................. 9,573 27,009 36,582
Net Investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy Benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Expenses........ 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
Expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment........................................................... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1996
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 65,114 $ $ $ $ $ 65,114
Policy Charges and
fees.................. 8,722 20,681 29,403
Net Investment income.. 51,128 51,128
Other income........... 0
-------- -------- -------- ------- ----- --------
Total Revenues........ 73,836 20,681 51,128 145,645
Benefits and Expenses
Policy Benefits........ 47,355 15,807 63,162
Required reserve inter-
est................... (17,021) (20,599) 37,620 0
Amortization of acqui-
sition costs.......... 12,817 7,033 19,850
Commissions and premium
taxes................. 4,995 253 5,248
Required interest on
acquisition costs..... 8,045 3,712 (11,757) 0
-------- -------- -------- ------- ----- --------
Total Expenses........ 56,191 6,206 25,863 88,260
-------- -------- -------- ------- ----- --------
Underwriting income be-
fore other income and
administrative ex-
pense................. 17,645 14,475 25,265 57,385
Administrative Ex-
pense................. 3,682 3,682
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 437 437
-------- -------- -------- ------- ----- --------
Pretax operating in-
come.................. $ 17,645 $ 14,475 $ 25,265 $(3,966) $(437) 52,982
======== ======== ======== ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 1,362
--------
Pretax income.......................................................... $ 54,344
========
</TABLE>
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $873,478 $ $ $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- --- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ 0 $3,837,038
======== ========== ======== ======== === ==========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $692,659 $ $ $ 692,659
Accrued investment
income................. 11,270 11,270
Deferred acquisition
costs.................. 117,410 93,241 210,651
Goodwill................ 6,771 6,771
Separate account
assets................. 1,876,439 1,876,439
Other Assets............ 229,351 229,351
-------- ---------- -------- -------- ----- ----------
Total Assets............ $117,410 $1,969,680 $703,929 $236,122 $ 0 $3,027,141
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1996
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $664,861 $ $ $ 664,861
Accrued investment
income................. 10,781 10,781
Deferred acquisition
costs.................. 120,083 66,063 186,146
Goodwill................ 7,055 7,055
Separate account
assets................. 1,420,025 1,420,025
Other Assets............ 39,748 39,748
-------- ---------- -------- -------- ----- ----------
Total Assets............ $120,083 $1,486,088 $675,642 $ 46,803 $ 0 $2,328,616
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
And the Contract Owners of the
United Investors Universal Life Variable Account
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Universal
Life Variable Account as of December 31, 1998 and the related statement of
operations and changes in net assets for each of the years in the two-year
period ended December 31, 1998. These financial statements are the
responsibility of the United Investors Life Insurance Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Investors Universal
Life Variable Account at December 31, 1998 and the results of its operations
and changes in its net assets for each of the years in the two-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 9, 1999
F-29
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
BALANCE SHEET
As of December 31, 1998
<TABLE>
<CAPTION>
Money High Small Limited Asset
Market Bond Income Growth Income International Cap Balanced Term Bond Strategy
--------- --------- --------- ---------- ---------- ------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $ 246,894 $ 299,606 $ 440,562 $3,710,479 $4,234,505 $1,468,991 $1,585,381 $ 653,294 $ 12,270 $ 118,196
--------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
Total assets.... 246,894 299,606 440,562 3,710,479 4,234,505 1,468,991 1,585,381 653,294 12,270 118,196
--------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 891 956 1,487 11,248 13,267 3,589 4,622 2,128 21 320
--------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
Total liabili-
ties........... 891 956 1,487 11,248 13,267 3,589 4,622 2,128 21 320
--------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
Net assets (Note
C)............. $ 246,003 $ 298,650 $ 439,075 $3,699,231 $4,221,238 $1,465,402 $1,580,759 $ 651,166 $ 12,249 $ 117,876
========= ========= ========= ========== ========== ========== ========== ========= ========= =========
Equity:
Equity of
contract
owners......... $ 246,003 $ 298,650 $ 439,075 $3,699,231 $4,221,238 $1,465,402 $1,580,759 $ 651,166 $ 12,249 $ 117,876
--------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- ---------
Total equity.... $ 246,003 $ 298,650 $ 439,075 $3,699,231 $4,221,238 $1,465,402 $1,580,759 $ 651,166 $ 12,249 $ 117,876
========= ========= ========= ========== ========== ========== ========== ========= ========= =========
Accumulation
units
outstanding.... 234,970 277,115 428,073 2,825,362 3,414,288 1,047,807 1,392,319 589,419 11,495 105,200
========= ========= ========= ========== ========== ========== ========== ========= ========= =========
Net asset value
per unit....... $1.046956 $1.077711 $1.025701 $ 1.309295 $1.236345 $ 1.398542 $ 1.135343 $1.104759 $1.065594 $1.120494
========= ========= ========= ========== ========== ========== ========== ========= ========= =========
<CAPTION>
Science and
Technology Total
----------- -----------
<S> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $1,585,863 $14,356,041
----------- -----------
Total assets.... 1,585,863 14,356,041
----------- -----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 3,783 42,312
----------- -----------
Total liabili-
ties........... 3,783 42,312
----------- -----------
Net assets (Note
C)............. $1,582,080 $14,313,729
=========== ===========
Equity:
Equity of
contract
owners......... $1,582,080 $14,313,729
----------- -----------
Total equity.... $1,582,080 $14,313,729
=========== ===========
Accumulation
units
outstanding.... 1,070,721 11,396,789
=========== ===========
Net asset value
per unit....... $1.477584
===========
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Money High Limited
Market Bond Income Growth Income International Small Cap Balanced Term Bond
--------- --------- --------- ----------- ----------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 4,762 $ 16,465 $ 38,018 $ 129,060 $ 627,897 $ 124,877 $ 228,030 $ 21,860 $ 676
Expenses paid to
sponsor:
Mortality and ex-
pense risk
charge........... 891 956 1,486 11,244 13,262 3,588 4,618 2,128 21
Contract maintenance charges:
Administrative
expense......... 388 1,361 3,063 32,119 36,294 8,967 13,611 4,869 99
Guaranteed death
benefit......... 245 426 875 9,237 10,102 2,859 4,217 1,316 25
Costs of insur-
ance............ 15,730 17,170 33,037 248,252 285,213 67,766 95,972 46,354 808
Waiver monthly
deduction....... 29 152 400 3,307 3,286 917 1,363 634 6
Accidental death
rider........... 0 0 5 174 264 47 78 82 7
Child term rid-
er.............. 75 98 225 1,599 2,126 343 620 365 4
Additional insur-
ance rider...... 16 279 389 3,570 4,604 899 1,505 794 8
--------- --------- --------- ----------- ----------- ----------- ----------- --------- --------
Total........... 17,374 20,442 39,480 309,502 355,151 85,386 121,984 56,542 978
Net investment in-
come.............. (12,612) (3,977) (1,462) (180,442) 272,746 39,491 106,046 (34,682) (302)
Realized investment
gains (losses)
distributed to ac-
counts............ 0 657 (1,520) (3,822) 1,775 1,854 183 429 6
Unrealized invest-
ment gains (loss-
es)............... 0 (8,740) (34,058) 306,070 (346,825) (22,139) (157,161) 598 (533)
--------- --------- --------- ----------- ----------- ----------- ----------- --------- --------
Net gain (loss) on
investments....... 0 (8,083) (35,578) 302,248 (345,050) (20,285) (156,978) 1,027 (527)
--------- --------- --------- ----------- ----------- ----------- ----------- --------- --------
Net increase
(decrease) in net
assets from
operations........ (12,612) (12,060) (37,040) 121,806 (72,304) 19,206 (50,932) (33,655) (829)
Premium deposits &
net transfers*.... 258,231 314,973 480,696 3,570,770 4,262,621 1,437,753 1,610,853 692,119 13,078
Investment by spon-
sor (Note E)...... 0 0 0 0 0 0 0 0 0
Transfer to sponsor
for benefits and
terminations...... 0 (6,188) (9,115) (26,784) (25,335) (8,203) (3,342) (12,263) 0
--------- --------- --------- ----------- ----------- ----------- ----------- --------- --------
Total increase (de-
crease)........... 245,619 296,725 434,541 3,665,792 4,164,982 1,448,756 1,556,579 646,201 12,249
Net assets at be-
ginning of peri-
od................ 384 1,925 4,534 33,439 56,256 16,646 24,180 4,965 0
--------- --------- --------- ----------- ----------- ----------- ----------- --------- --------
Net assets at end
of period (Note
C)................ $ 246,003 $ 298,650 $ 439,075 $ 3,699,231 $ 4,221,238 $ 1,465,402 $ 1,580,759 $ 651,166 $ 12,249
========= ========= ========= =========== =========== =========== =========== ========= ========
<CAPTION>
Asset Science and
Strategy Technology Total
---------- ------------ -------------
<S> <C> <C> <C>
Dividend income
(Note B, D)....... $ 6,774 $ 29,214 $ 1,227,633
Expenses paid to
sponsor:
Mortality and ex-
pense risk
charge........... 320 3,781 42,295
Contract maintenance charges:
Administrative
expense......... 887 11,730 113,388
Guaranteed death
benefit......... 285 3,592 33,179
Costs of insur-
ance............ 7,398 84,695 902,395
Waiver monthly
deduction....... 85 1,211 11,390
Accidental death
rider........... 15 63 735
Child term rid-
er.............. 90 691 6,236
Additional insur-
ance rider...... 271 1,366 13,701
---------- ------------ -------------
Total........... 9,351 107,129 1,123,319
Net investment in-
come.............. (2,577) (77,915) 104,314
Realized investment
gains (losses)
distributed to ac-
counts............ 9 777 348
Unrealized invest-
ment gains (loss-
es)............... (4,603) 255,898 (11,493)
---------- ------------ -------------
Net gain (loss) on
investments....... (4,594) 256,675 (11,145)
---------- ------------ -------------
Net increase
(decrease) in net
assets from
operations........ (7,171) 178,760 93,169
Premium deposits &
net transfers*.... 124,457 1,396,768 14,162,319
Investment by spon-
sor (Note E)...... 0 0 0
Transfer to sponsor
for benefits and
terminations...... 0 (5,363) (96,593)
---------- ------------ -------------
Total increase (de-
crease)........... 117,286 1,570,165 14,158,895
Net assets at be-
ginning of peri-
od................ 590 11,915 154,834
---------- ------------ -------------
Net assets at end
of period (Note
C)................ $ 117,876 $ 1,582,080 $ 14,313,729
========== ============ =============
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-31
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Money High Small Limited Asset
Market Bond Income Growth Income International Cap Balanced Term Bond Strategy
------ ------- ------- -------- -------- ------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 0 $ 111 $ 363 $ 1,670 $ 2,354 $ 530 $ 4,089 $ 203 $ 0 $ 23
Expenses paid to
sponsor (Note D):
Mortality and ex-
pense risk
charge........... 0 0 1 3 5 2 4 1 0 0
Contract maintenance charges:
Administrative
expense......... 1 6 12 125 178 39 73 27 0 4
Guaranteed death
benefit......... 0 1 5 37 51 16 26 7 0 1
Costs of insur-
ance............ 15 75 176 998 1,331 374 537 201 0 14
Waiver monthly
deduction....... 0 1 1 10 14 3 4 7 0 1
Accidental death
rider........... 0 0 0 0 3 0 0 2 0 0
Child term rid-
er.............. 0 0 2 11 21 1 3 9 0 0
Additional insur-
ance rider...... 0 0 0 15 17 7 7 6 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Total........... 16 83 197 1,199 1,620 442 654 260 0 20
Net investment in-
come (loss)....... (16) 28 166 471 734 88 3,435 (57) 0 3
Realized investment
gains (losses)
distributed to ac-
counts............ 0 0 0 0 0 0 0 0 0 0
Unrealized invest-
ment gains (loss-
es)............... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23)
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net gain (loss) on
investments....... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23)
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net decrease in net
assets from
operations........ (16) (81) (181) (856) (987) (385) (23) (224) 0 (20)
Premium deposits
and net trans-
fers*............. 400 2,006 4,715 34,295 57,243 17,031 24,203 5,189 0 610
Investment by spon-
sor (Note E)...... 0 0 0 0 0 0 0 0 0 0
Transfer to sponsor
for benefits and
terminations...... 0 0 0 0 0 0 0 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Total increase..... 384 1,925 4,534 33,439 56,256 16,646 24,180 4,965 0 590
Net assets at be-
ginning of peri-
od................ 0 0 0 0 0 0 0 0 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net assets at end
of period (Note
C)................ $ 384 $ 1,925 $ 4,534 $ 33,439 $ 56,256 $ 16,646 $ 24,180 $ 4,965 $ 0 $ 590
===== ======= ======= ======== ======== ======== ======== ======= === =====
<CAPTION>
Science and
Technology Total
----------- ----------
<S> <C> <C>
Dividend income
(Note B, D)....... $ 44 $ 9,387
Expenses paid to
sponsor (Note D):
Mortality and ex-
pense risk
charge........... 1 17
Contract maintenance charges:
Administrative
expense......... 45 510
Guaranteed death
benefit......... 15 159
Costs of insur-
ance............ 337 4,058
Waiver monthly
deduction....... 6 47
Accidental death
rider........... 0 5
Child term rid-
er.............. 4 51
Additional insur-
ance rider...... 7 59
----------- ----------
Total........... 415 4,906
Net investment in-
come (loss)....... (371) 4,481
Realized investment
gains (losses)
distributed to ac-
counts............ 0 0
Unrealized invest-
ment gains (loss-
es)............... 162 (7,463)
----------- ----------
Net gain (loss) on
investments....... 162 (7,463)
----------- ----------
Net decrease in net
assets from
operations........ (209) (2,982)
Premium deposits
and net trans-
fers*............. 12,124 157,816
Investment by spon-
sor (Note E)...... 0 0
Transfer to sponsor
for benefits and
terminations...... 0 0
----------- ----------
Total increase..... 11,915 154,834
Net assets at be-
ginning of peri-
od................ 0 0
----------- ----------
Net assets at end
of period (Note
C)................ $ 11,915 $ 154,834
=========== ==========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-32
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note A--Summary of Significant Accounting Policies
Organization--The United Investors Universal Life Variable Account ("the
Universal Life Variable Account") was established on August 15, 1997 as a
segregated account of United Investors Life Insurance Company ("the Sponsor")
and has been registered as a unit investment trust under the Investment Company
Act of 1940. The Universal Life Variable Account invests in shares of
Target/United Funds, Inc. ("the Fund"), a mutual fund with eleven separate
investment portfolios including a money market portfolio, a bond portfolio, a
high income portfolio, a growth portfolio, an income portfolio, an
international portfolio, a small cap portfolio, a balanced portfolio, a limited
term bond portfolio, an asset strategy portfolio and a science and technology
portfolio (established during 1997). The assets of each portfolio of the Fund
are held separate from the assets of the other portfolios. Thus, each portfolio
operates as a separate investment portfolio, and the investment performance of
one portfolio has no effect on any other portfolio.
Basis of Presentation--The financial statements of the Universal Life
Variable Account have been prepared on an accrual basis in accordance with
generally accepted accounting principles.
Federal Taxes--Currently no charge is made to the Universal Life Variable
Account for federal income taxes because no federal income tax is imposed on
the Sponsor for the Universal Life Variable Account investment income under
current tax law.
Note B--Investments
Stocks and convertible bonds of the Fund are valued at the latest sale price
on the last business day of the fiscal period as reported by the principal
securities exchange on which the issue is traded or, if no sale is reported for
a stock, the average of the latest bid and asked prices. Bonds, other than
convertible bonds, are valued using a matrix pricing system provided by a major
dealer in bonds. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over the counter
are priced using NASDAQ (National Association of Securities Dealers Automated
Quotations) which provides information on bid and asked prices quoted by major
dealers in such stocks. Short term debt securities are valued at amortized cost
which approximates market.
Security transactions are accounted for by the Fund on the trade date (date
the order to buy or sell is executed). Securities gains and losses are
calculated on the specific identification method. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on the accrual basis.
Investments in shares of the separate investment portfolios are stated at
market value which is the net asset value per share as determined by the
respective portfolios (see Note C-Net Assets). Dividends received by the
portfolios are reinvested daily in additional shares of the portfolios and are
recorded as dividend income on the record date.
F-33
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1998
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 4,762 $ 4,762
Bond......................................... 3,024 16,465
High Income.................................. 8,612 38,018
Growth....................................... 13,879 129,060
Income....................................... 50,903 627,897
International................................ 15,974 124,877
Small Cap.................................... 28,858 228,030
Balanced..................................... 3,075 21,860
Limited Term Bond............................ 129 676
Asset Strategy............................... 1,258 6,774
Science and Technology....................... 3,530 29,214
</TABLE>
<TABLE>
<CAPTION>
1997
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 0 $ 0
Bond......................................... 21 111
High Income.................................. 77 363
Growth....................................... 221 1,670
Income....................................... 197 2,354
International................................ 83 530
Small Cap.................................... 491 4,089
Balanced..................................... 30 203
Limited Term Bond............................ 0 0
Asset Strategy............................... 4 23
Science and Technology....................... 8 44
</TABLE>
F-34
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note C--Net Assets
The following table illustrates by component parts the net asset value for
each portfolio.
<TABLE>
<CAPTION>
Money High Limited Asset
1998 Market Bond Income Growth Income International Small Cap Balanced Term Bond Strategy
- ---- -------- -------- -------- ---------- ---------- ------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract
owners.......... $258,631 $316,979 $485,411 $3,605,065 $4,319,864 $1,454,784 $1,635,056 $697,308 $13,078 $125,067
Sponsor......... 0 0 0 0 0 0 0 0 0 0
Adjustment for
market
appreciation
(depreciation)... 4,762 8,384 2,456 431,651 283,480 104,649 71,683 22,923 149 2,180
Deductions:
Mortality and
expense risk
charge.......... (892) (956) (1,487) (11,247) (13,267) (3,590) (4,622) (2,129) (21) (324)
Contract
maintenance
charges:
Administrative
expense......... (388) (1,367) (3,075) (32,244) (36,472) (9,006) (13,684) (4,896) (99) (888)
Guaranteed death
benefit......... (260) (427) (880) (9,274) (10,153) (2,875) (4,243) (1,323) (25) (299)
Cost of
insurance....... (15,730) (17,245) (33,213) (249,250) (286,544) (68,140) (96,509) (46,555) (808) (7,399)
Waiver monthly
deduction....... (29) (153) (401) (3,317) (3,300) (920) (1,367) (641) (6) (85)
Accidental death
rider........... 0 0 (5) (174) (267) (47) (78) (84) (7) (15)
Child term
rider........... (75) (98) (227) (1,610) (2,147) (344) (623) (374) (4) (90)
Additional
insurance
rider........... (16) (279) (389) (3,585) (4,621) (906) (1,512) (800) (8) (271)
Benefits and
terminations.... 0 (6,188) (9,115) (26,784) (25,335) (8,203) (3,342) (12,263) 0 0
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Net assets....... $246,003 $298,650 $439,075 $3,699,231 $4,221,238 $1,465,402 $1,580,759 $651,166 $12,249 $117,876
======== ======== ======== ========== ========== ========== ========== ======== ======= ========
<CAPTION>
Science and
1998 Technology
- ---- ------------
<S> <C>
Cost to:
Contract
owners.......... $1,408,892
Sponsor......... 0
Adjustment for
market
appreciation
(depreciation)... 286,095
Deductions:
Mortality and
expense risk
charge.......... (3,782)
Contract
maintenance
charges:
Administrative
expense......... (11,775)
Guaranteed death
benefit......... (3,607)
Cost of
insurance....... (85,032)
Waiver monthly
deduction....... (1,217)
Accidental death
rider........... (63)
Child term
rider........... (695)
Additional
insurance
rider........... (1,373)
Benefits and
terminations.... (5,363)
------------
Net assets....... $1,582,080
============
</TABLE>
<TABLE>
<CAPTION>
Money High Small Limited Asset Science and
1997 Market Bond Income Growth Income International Cap Balanced Term Bond Strategy Technology
- ---- ------ ------ ------ ------- ------- ------------- ------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract owners... $400 $2,006 $4,715 $34,295 $57,243 $17,031 $24,203 $5,189 $ 0 $610 $12,124
Adjustment for
market appreciation
and reinvested
dividends.......... 0 2 16 343 633 57 631 36 0 0 206
Deductions:
Mortality and
expense risk
charge............ 0 0 (1) (3) (5) (2) (4) (1) 0 0 (1)
Contract
maintenance
charges:
Administrative
expense........... (1) (6) (12) (125) (178) (39) (73) (27) 0 (4) (45)
Guaranteed death
benefit........... 0 (1) (5) (37) (51) (16) (26) (7) 0 (1) (15)
Cost of
insurance......... (15) (75) (176) (998) (1,331) (374) (537) (201) 0 (14) (337)
Waiver monthly
deduction......... 0 (1) (1) (10) (14) (3) (4) (7) 0 (1) (6)
Accidental death
rider............. 0 0 0 0 (3) 0 0 (2) 0 0 0
Child term rider.. 0 0 (2) (11) (21) (1) (3) (9) 0 0 (4)
Additional
insurance rider... 0 0 0 (15) (17) (7) (7) (6) 0 0 (7)
Benefits and
terminations...... 0 0 0 0 0 0 0 0 0 0 0
---- ------ ------ ------- ------- ------- ------- ------ --- ---- -------
Net assets......... $384 $1,925 $4,534 $33,439 $56,256 $16,646 $24,180 $4,965 $ 0 $590 $11,915
==== ====== ====== ======= ======= ======= ======= ====== === ==== =======
</TABLE>
F-35
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note D--Charges and Deductions
Fund Management and Fees
Waddell & Reed Investment Management Company ("the Manager"), is the manager
of the Fund and provides investment advisory services to the Fund. Each
portfolio will pay the manager a fee for managing its investments consisting of
two elements: (i) a specific fee computed on each portfolio's net asset value
at the close of business each day at the following annual Rates; Money Market
Portfolio none; Bond Portfolio .03% of net assets; High Income Portfolio .15%
of net assets; Growth Portfolio .20% of net assets; Income Portfolio .20% of
net assets; International Portfolio .30% of net assets; Small Cap Portfolio
.35% of net assets; Balanced Portfolio .10% of net assets; Limited Term Bond
Portfolio .05% of net assets; Asset Strategy Portfolio .30% of net assets;
Science and Technology .20% of net assets, and (ii) a pro rata participation
based on the relative net asset size of each portfolio in a "Group" fee
computed each day on the combined net asset values of all of the portfolios at
the following annual rates: Group Net Asset Level from $0 to $750 million--
Annual Group Fee Rate--.51%; from $750 to $1,500 million--.49%; from $1,500 to
$2,250 million--.47%; over $2,250 million--.45%. Fees for these services are
deducted from dividend income. The amount of these fees have been:
<TABLE>
<CAPTION>
1998 1997
------- ----
<S> <C> <C>
Money Market................................................... $ 566 $ 1
Bond........................................................... 768 0
High Income.................................................... 1,436 1
Growth......................................................... 12,434 10
Income......................................................... 14,683 17
International.................................................. 6,061 5
Small Cap...................................................... 6,736 8
Balanced....................................................... 1,928 1
Limited Term Bond.............................................. 32 0
Asset Strategy................................................. 451 0
Science and Technology......................................... 4,477 3
</TABLE>
Mortality and Expense Risk Charges
United Investors currently deducts a daily charge from assets in the
Investment Divisions attributable to the Policies at an effective annual rate
of 0.90% of Variable Account assets during the first 10 Policy Years, and at an
effective annual rate of 0.70% thereafter. The maximum mortality and expense
risk charge is 0.90% of Variable Account assets for all Policy Years. The
mortality and expense risk charge does not apply to Fixed Account assets.
Profit from this charge may be used for any purpose, including distribution
expenses.
Premium Deposit Charges
United Investors deducts a 3.5% charge from each premium before allocating
the resulting Net Premium to the Policy Value. This charge is deducted for
state premium taxes and federal income tax treatment of deferred acquisition
costs.
F-36
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Monthly Deduction
United Investors deducts the Monthly Deduction on the Policy Date and on
each Monthly Anniversary from Policy Value in the Variable Account and the
Fixed Account on a pro rata basis. The Monthly Deduction for each Policy
consists of:
(1) the cost of insurance charge discussed below;
(2) a current monthly administrative charge of $5.00 (which may increase to
a maximum charge of $7.50 per month);
(3) the Guaranteed Death Benefit Charge ($0.01 per $1,000 of Face Amount)
as long as the Death Benefit Guarantee remains in effect; and
(4) charges for any supplemental benefits added by Riders to the Policy.
Surrender Charges
If the Policy is surrendered prior to the end of the 16th Policy Year or
the end of the 16th year following an increase in Face Amount, United
Investors will deduct a surrender charge based on the Face Amount at issue, or
increase, as applicable. The surrender charge will be deducted before any
surrender proceeds are paid. A pro rata portion of the Surrender Charge will
also be deducted for any Face Amount decreases. The surrender charge varies
based on the Insured's age on the Policy Date, or Attained Age at the time of
an increase, and is calculated as an amount per $1,000 of the Face Amount. For
each age the surrender charge remains level for the first five Policy Years
(or the first five years after a Face Amount increase) and declines each year
thereafter until it reaches zero at the end of the 16th Policy Year (or at the
end of the 16th year after an increase in Face Amount).
During the first five Policy Years (or first five years after a Face Amount
increase) the surrender charge per $1,000 of Face Amount is as follows for the
selected ages below:
<TABLE>
<CAPTION>
Issue Age Charge per $1,000 of Face Amount
--------- --------------------------------
<S> <C>
25.......................................... $ 6.00
35.......................................... $ 7.00
45.......................................... $ 8.75
50.......................................... $10.00
55.......................................... $11.50
65.......................................... $16.75
75.......................................... $26.00
</TABLE>
Partial Surrender Charge
A Partial Surrender charge equal to the lesser of $25 or 2% of the Partial
Surrender amount, plus a portion of the surrender charge will apply to each
Partial Surrender. This charge will be deducted from the Policy Value along
with the Partial Surrender amount.
Cost of Insurance
A mortality charge will be deducted monthly to compensate the Sponsor for
the cost of insurance for the preceding policy year. The mortality charge is
based on a policy's net amount at risk and on the attained age, sex and risk
class of the insured, and is determined by the Sponsor based upon its
expectation as to future mortality experience.
F-37
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note E--Selected unit data
Selected data for a weighted average unit of the Universal Life Variable
Separate Account outstanding throughout each period follows.
1998
<TABLE>
<CAPTION>
Money High Small Limited Asset Science and
Market Bond Income Growth Income International Cap Balanced Term Bond Strategy Technology
------ ------ ------ ------ ------ ------------- ------ -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend
income.......... $ 0.05 $ 0.16 $ 0.24 $ 0.12 $ 0.49 $ 0.40 $ 0.48 $ 0.10 $ 0.28 $ 0.21 $ 0.08
Expenses........ 0.18 0.20 0.25 0.29 0.28 0.27 0.25 0.26 0.41 0.29 0.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment
income (loss)-
net............. (0.13) (0.04) (0.01) (0.17) 0.21 0.13 0.23 (0.16) (0.13) (0.08) (0.23)
Net realized and
unrealized
investments
gains (losses).. 0.00 (0.08) (0.22) 0.28 (0.27) (0.06) (0.33) 0.00 (0.22) (0.14) 0.74
Premium deposits
& net
transfers....... 2.63 3.13 2.99 3.34 3.36 4.60 3.36 3.13 5.46 3.81 4.01
Transfer to
sponsor for
benefits and
terminations.... 0.00 (0.06) (0.06) (0.03) (0.02) (0.03) (0.01) (0.06) 0.00 0.00 (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total increase
in net value.... 2.50 2.95 2.70 3.42 3.28 4.64 3.25 2.91 5.11 3.59 4.50
Net asset value,
beginning of the
period.......... $ 1.01 $ 1.02 $ 1.02 $ 1.03 $ 1.03 $ 1.05 $ .90 $ 1.03 $ 0.00 $ 1.03 $ 1.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of the
period.......... $ 3.51 $ 3.97 $ 3.72 $ 4.45 $ 4.31 $ 5.69 $ 4.15 $ 3.94 $ 5.11 $ 4.62 $ 5.51
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
1997
<CAPTION>
Money High Small Limited Asset Science and
Market Bond Income Growth Income International Cap Balanced Term Bond Strategy Technology
------ ------ ------ ------ ------ ------------- ------ -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend
income.......... $ 0.00 $ 0.06 $ 0.08 $ 0.05 $ 0.04 $ 0.03 $ 0.17 $ 0.04 $ 0.00 $ 0.04 $ 0.00
Expenses........ 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.05 0.00 0.03 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment
income (loss)-
net............. (0.04) 0.02 0.04 0.01 0.01 0.00 0.14 (0.01) 0.00 0.01 (0.04)
Net realized and
unrealized
investments
gains (losses).. 0.00 (0.08) (0.08) (0.04) (0.03) (0.03) (0.15) (0.03) 0.00 (0.04) 0.01
Premium deposits
& net
transfers....... 1.05 1.05 1.06 1.06 1.05 1.08 0.91 1.07 0.00 1.06 1.04
Transfer to
sponsor for
benefits and
terminations.... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total increase
in net value.... 1.01 1.02 1.02 1.03 1.03 1.05 0.90 1.03 0.00 1.03 1.01
Net asset value,
beginning of the
period.......... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ .00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of the
period.......... $ 1.01 $ 1.02 $ 1.02 $ 1.03 $ 1.03 $ 1.05 $ 0.90 $ 1.03 $ 0.00 $ 1.03 $ 1.01
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-38
<PAGE>
PART II
-------
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
--------------------
In-so-far as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
----------------------------------------------
United Investors Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by United Investors Life Insurance Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 85 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons: John H. Livingston, Esquire;
W. Thomas Aycock; KPMG Peat Marwick LLP;
and Sutherland Asbill & Brennan LLP
The following exhibits, corresponding to those required by paragraph A
of the instructions as to exhibits in Form N-8B-2:
1. A.
(1) Resolution of the Board of Directors of United Investors
Life Insurance Company establishing United Investors
Universal Life Variable Account./1/
(2) Not Applicable
(3) (a) Underwriting Agreement/3/
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Life Insurance
Policy/1/
(b) Accelerated Death Benefit Rider/1/
(c) Disability Waiver of Monthly Deduction Rider/1/
(d) Additional Insured Term Insurance Rider/1/
(e) Children's Term Insurance Rider/1/
(f) Accidental Death Benefit Rider/1/
(6) (a) Articles of Incorporation of United Investors Life
Insurance Company./2/
(b) By-laws of United Investors Life Insurance
Company./2/
(7) Not applicable
(8) Form of Participation Agreement/3/
(9) Not applicable
(10) Application form/3/
(11) Description of issuance, transfer and redemption
procedures./3/
-2-
<PAGE>
2. Opinion and consent of John H. Livingston, Esquire, as to the legality
of the securities being registered./4/
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of W. Thomas Aycock as to actuarial matters
pertaining to the securities being registered./4/
7. (a) Consent of KPMG Peat Marwick LLP/4/
(b) Consent of Sutherland Asbill & Brennan LLP/4/
- ------------------------------
/1/ Incorporated herein by reference to the initial Registration Statement on
Form S-6, File No. 333-26505, filed on May 5, 1997.
/2/ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 29, 1998 (previously filed on January 22,
1987, as an Exhibit to the Form S-6 Registration, File No. 33-11465)
/3/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to Form
S-6 Registration Statement, File No. 333-26505, filed on August 8, 1997.
/4/ Filed herewith.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
United Investors Universal Life Variable Account, certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in
Birmingham, Alabama on the 28th day of April, 1999.
United Investors Universal Life Variable Account
(Registrant)
(Seal) United Investors Life Insurance Company
(Depositor)
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
-------------------------- ------------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following Directors and Officers of
United Investors Life Insurance Company in the capacities and on the Dates
indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board of Directors
- -------------------------------- and Chief Executive Officer ----------
C. B. Hudson
/s/ Anthony L. McWhorter Director and President 4-27-99
- -------------------------------- ----------
Anthony L. McWhorter
/s/ W. Thomas Aycock Director, Vice President and 4-27-99
- -------------------------------- Chief Actuary ----------
W. Thomas Aycock
/s/ Tony G. Brill Director and Executive Vice 4-28-99
- -------------------------------- President - Administration ----------
Tony G. Brill
Senior Vice President - Marketing
- -------------------------------- ----------
Mark S. McAndrew
/s/ Larry M. Hutchison Director 4-28-99
- -------------------------------- ----------
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer 4-27-99
- -------------------------------- ----------
Michael J. Klyce
/s/ James L. Mayton, Jr. Vice President and Controller 4-27-99
- -------------------------------- ----------
James L. Mayton, Jr.
/s/ John H. Livingston Director, Secretary and Counsel 4-27-99
- -------------------------------- ----------
John H. Livingston
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Carol A. McCoy Director and Assistant Secretary 4-27-99
- -------------------------------- ----------
Carol A. McCoy
/s/ Ross W. Stagner Director and Vice President 4-27-99
- -------------------------------- ----------
Ross W. Stagner
/s/ Terry W. Davis Director and Vice President - 4-27-99
- -------------------------------- Administration ----------
Terry W. Davis
<PAGE>
Exhibit Index
2. Opinion of John H. Livingston, Esquire, as to the legality of the
securities being registered.
6. Opinion and consent of W. Thomas Aycock as to actuarial matters
pertaining to the securities being registered.
7. (a) Consent of KPMG Peat Marwick LLP.
7. (b) Consent of Sutherland, Asbill & Brennan LLP.
<PAGE>
Exhibit 2.
[LETTERHEAD OF UNITED INVESTORS LIFE APPEARS HERE]
April 28, 1999
The Board of Directors
United Investors Life Insurance Company
2001 Third Avenue, South
Birmingham, Alabama 35233
Gentlemen:
With reference to the Registration Statement for the United Investors
Universal Life Variable Account filed on Form S-6 (File No. 333-26505) with the
Securities and Exchange Commission covering flexible premium variable life
insurance policies, I have examined such documents and such law as I considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. United Investors Life Insurance Company is duly organized and validly
existing under the laws of the State of Missouri and has been duly
authorized to issue individual flexible premium variable life policies
by the Division of Insurance of the State of Missouri.
2. The United Investors Universal Life Variable Account is a duly
authorized and existing separate account established pursuant to the
provisions of Section 376.309, of the Revised Statutes of Missouri.
3. The flexible premium variable life policies, when issued as
contemplated by said Form S-6 Registration Statement, will constitute
legal, validly issued and binding obligations of United Investors Life
Insurance Company.
I hereby consent to the filing of this opinion as an Exhibit to said S-6
Registration Statement.
Very truly yours,
/s/ John H. Livingston
------------------------------
John H. Livingston, Esquire
Secretary and Counsel
JHL:dk
<PAGE>
Exhibit 6
[LETTERHEAD OF UNITED INVESTORS LIFE APPEARS HERE]
April 28, 1999
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
In my capacity as Vice President and Chief Actuary of United Investors Life
Insurance Company, I have provided advice concerning the illustration of death
benefits and policy values set forth in Appendix B to the prospectus contained
in the Registration Statement for the United Investors Universal Life Variable
Account filed on Form S-6 (File No. 333-26505) with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Registration Statement")
regarding the offer and sale of flexible premium variable life insurance
policies (the "Policies").
It is my professional opinion that the illustration of death benefits and
policy values included in the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a purchaser of a Policy for male age 35 standard non-tobacco or
male age 50 standard non-tobacco than to prospective purchasers of Policies at
other ages or underwriting classes.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Sincerely,
/s/ W. Thomas Aycock
--------------------------------
W. Thomas Aycock
Vice President and Chief Actuary
WTA:dk
<PAGE>
Exhibit 7(a)
April 28, 1999
The Board of Directors of
United Investors Life Insurance Company
and the Contract Owners of the United
Investors Universal Life Variable Account
We consent to the use of our report dated January 29, 1999, relating to the
balance sheets of United Investors Life Insurance Company as of December 31,
1998 and 1997, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, and also to the use of our report dated April 9,
1999, relating to the balance sheet of United Investors Universal Life Variable
Account as of December 31, 1998, and the related statements of operations and
changes in net assets for each of the years in the two-year period ended
December 31, 1998, as contained in Post-Effective Amendment No. 3 to Form S-6
for United Investors Universal Life Variable Account. We also consent to the
reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 28, 1999
<PAGE>
Exhibit 7(b)
[Letterhead of Sutherland, Asbill & Brennan LLP]
April 28, 1999
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Post-Effective Amendment No. 3 to
the Form S-6 registration statement for United Investors Universal Life Variable
Account (File No. 333-26505). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Frederick R. Bellamy, Esq.
---------------------------------
Frederick R. Bellamy, Esq.
